Stabilization cocktails for a Eurozone Crisis-Solving Framework

weaadmin — Sat, 18 Oct 2014 17:05:17 +0000

As of late 2014, the Eurozone still has yet to enter a path of sustained recovery which brings dismal conditions to many European citizens, especially in the periphery. Optimum Currency Area theory can be used to analyze single currency areas, yet is little operational due to conceptual confusion. In this paper, a new conceptual paradigm that makes currency area theory useful to decision-makers is proposed. This paradigm relies on two prongs: on one side, the study of deviations from an ideal currency area and on the other, the stabilization mechanism cocktails. Stabilization mechanisms and their impact on different macro shocks are then presented in a table. The framework resulting from this paper will be useful for conducting a constructive dialogue between Eurozone Member states on the future of their currency union.

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Stabilization cocktails for a Eurozone Crisis-Solving Framework