Discussion Paper Details

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Title: The eurozone: what is to be done?

Author(s): Patrick Minford, Zhirong Ou, Michael R. Wickens and Zheyi Zhu

Publication Date: June 2021

Keyword(s): Eurozone, Fiscal policy, macro stability and monetary independence

Programme Area(s): International Macroeconomics and Finance

Abstract: We construct a macro DSGE model of the eurozone and its two main regions, the North and the South, with the aim of matching the macro facts of these economies by indirect inference and using the resulting empirically-based model to assess possible new policy regimes. The model we have found to fit the facts suggests that substantial gains in macro stability and consumer welfare are possible if the fiscal authority in each region is given the freedom to respond to its own economic situation. Further gains could come with the restoration of monetary independence to the two regions, in effect creating a second 'southern euro' bloc.

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Bibliographic Reference

Minford, P, Ou, Z, Wickens, M and Zhu, Z. 2021. 'The eurozone: what is to be done?'. London, Centre for Economic Policy Research.