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Insurance Mechanisms against Asymmetric Shocks in a Monetary Union: a Proposal with an Application to EMU*

Published online by Cambridge University Press:  17 August 2016

Oscar Bajo-Rubio  and
Carmen Díaz-Roldán
Oscar Bajo-Rubio
Affiliation:
Universidad Público de Navarra
Carmen Díaz-Roldán
Affiliation:
Universidad Público de Navarra
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Summary

In this paper we propose a simple, automatic insurance mechanism designed to cope with asymmetric shocks in a monetary union, which could be used as starting point of a more elaborated policy instrument. The mechanism would use as indicator of the occurrence of a shock the changes in the unemployment rate of the countries belonging to the union, and would be financed through a fund built from contributions of these countries as a percentage of their tax receipts. The fund would be distributed among the countries affected by a negative asymmetric shock according to the proportion in which every one of them would have been affected by the shock. Our proposal is illustrated by means of an empirical application to the case of EMU.

Résumé

Résumé

Nous proposons dans cet article un mécanisme simple d'assurance automatique conçu pour traiter les chocs asymétriques dans une union monétaire, qui pourrait être utilisé comme point de départ d'un instrument de politique plus élaboré. Ce mécanisme pourrait être utilisé comme indicateur de l'arrivée d'un choc sur les changements du taux de chômage des pays de l'Union, et pourrait être financé par un fonds de contributions des membres exprimées en pourcentage de leurs recettes fiscales. Ce fond pourrait être distribué aux pays qui ont subi un choc asymétrique négatif proportionnellement à l'intensité du choc. Nous illustrons notre proposition par une application empirique à l'Union Economique et monétaire.

Keywords

union monétairechocs asymétriquesfonction d'assuranceE62E63Monetary unionasymmetric shocksinsurance functionE62E63
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 69 , Issue 1 , 2003 , pp. 73 - 96
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2003 

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Footnotes

*

The authors wish to thank the comments received from participants at the 6th World Congress of the Regional Science Association International (Lugano, May 2000), the International Symposium on Economic Modelling (Pamplona, June 2000), and, especially, an anonymous referee of this journal. Financial support from the Spanish Institute for Fiscal Studies and the Spanish Ministry of Education, through the Project PB98-0546-C02-01, is also gratefully acknowledged.

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