Output Stabilization in EMU: IS there a Case for EFTS?

Abstract

Macroeconomic performance in the Economic and Monetary Union (EMU) will be impaired if macroeconomic shocks are largely asymmetric, fiscal policy flexibility is limited, goods markets adjust sluggishly, labour mobility is low and automatic stabilization from federal taxes and government spending is low like in the EU currently.This paper addresses the question whether a system of fiscal transfers to stabilize differences in national business cycles can improve the overall macroeconomic performance in the monetary union.business cycles;output;EMS;monetary policy;fiscal policy