Three Essays on Imbalances in a Monetary Union

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dc.contributor.author HJORTSØ, Ida Maria
dc.date.accessioned 2012-11-30T15:32:23Z
dc.date.available 2012-11-30T15:32:23Z
dc.date.issued 2012
dc.identifier.citation Florence : European University Institute, 2012
dc.identifier.uri http://hdl.handle.net/1814/24598
dc.description Defence date: 15 November 2012 en
dc.description Examining Board: Professor Giancarlo Corsetti,University of Cambridge (External Supervisor) Professor Gianluca Benigno, London School of Economics Professor Russell Cooper, Penn State University Professor Henrik Jensen, University of Copenhagen.
dc.description.abstract This thesis investigates the implications of imbalances within a monetary union. In the first chapter, I study how international financial frictions lead to international imbalances and affect optimal fiscal policy in a two-country, two-good DSGE model of a monetary union. I show that the presence of international imbalances affects the optimal conduct of cooperative fiscal policies when the traded goods are complements. Government expenditures optimally play a cross-country risk sharing role which is in conflict with the domestic stabilization role: optimal fiscal policy consists in setting government expenditures such as to reduce international imbalances at the expense of higher domestic inefficiencies. In the second chapter, I assess the implications of strategic fiscal policy interactions in a two-country DSGE model of a monetary union with nominal rigidities and international financial frictions. I show that the fiscal policy makers face an incentive to set fiscal policy such as to switch the terms of trade in their favour. This incentive results in a Nash equilibrium characterized by excessive inflation differentials as well as sub-optimally high current account imbalances within the monetary union. There are thus non-negligeable welfare losses associated with strategic fiscal policy making in a monetary union. The third chapter investigates empirically the degree of risk sharing in the European Economic and Monetary Union (EMU), using two different methods. The first measure relates to the capacity of consumption smoothing. This measure indicates that risk sharing is rather low and that the introduction of the common currency did not lead to higher intra-EMU risk sharing. The second measure is based on the welfare losses associated with deviations from full risk sharing. These welfare losses have fallen since the introduction of the common currency. However, this is mostly due to changes in macroeconomic risk - not to changes in risk sharing per se.
dc.language.iso en
dc.relation.ispartofseries EUI PhD theses
dc.relation.ispartofseries Department of Economics
dc.title Three Essays on Imbalances in a Monetary Union en
dc.type Thesis en
dc.identifier.doi 10.2870/60632
dc.neeo.contributor HJORTSØ|Ida Maria|aut|


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