Cross-country insurance mechanisms in currency unions. Bruegel Working Paper 2014/04, 27 March 2014

Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundell’s optimal currency area theory, and compare them to the United States. For this purpose, we update a number of empirical analyses in the economic literature that identify (1) the size of asymmetries across countries and (2) the magnitude of insurance mechanisms relative to similar mechanisms and compare results for the European Monetary Union (EMU) with those obtained for the US. To study the level of synchronization between EMU countries we follow Alesina et al. (2002) and Barro and Tenreyro (2007). To measure the effect of an employment shock on employment levels, unemployment rates and participation rates we perform an analysis based on Blanchard and Katz (1992) and Decressin and Fatas (1995). We measure consumption smoothing through capital markets, fiscal transfers and savings, using the approach by Asdrubali et al. (1996) and Afonso and Furceri (2007). To analyze risk sharing through a common safety net for banks we perform a rudimentary simulation analysis. |

The Potential Evolution of the European Energy System to 2020 and 2050. CEPS Working Document No. 392, 26 March 2014

This paper assesses the impact of decarbonisation of the energy sector on employment in Europe. Setting the stage for such an assessment, the paper provides an analysis of possible pathways to decarbonise Europe’s energy system, taking into account EU greenhouse gas emissions reduction targets for 2020 and 2050. It pays particular attention to various low-carbon technologies that could be deployed in different regions of the EU. It concludes that efficiency and renewables play a major role in any decarbonisation scenario and that the power sector is the main enabler for the transition to a low-carbon economy in Europe, despite rising electricity demand. The extent of the decline in the share of fossil fuels will largely depend on the existence of carbon capture and storage (CCS), which remains a major source of uncertainty.