Evaluating the Eurozone’s Impact on Portugal Amidst Modern Uncertainties

Pedro Bação; Antonio Portugal Duarte; Fátima Sol Murta

doi:10.47743/saeb-2025-0015

Authors

Pedro Bação Faculty of Economics, University of Coimbra, CeBER
Antonio Portugal Duarte Faculty of Economics, University of Coimbra, CeBER
Fátima Sol Murta Faculty of Economics, University of Coimbra, CeBER

DOI:

https://doi.org/10.47743/saeb-2025-0015

Keywords:

counterfactual analysis, Euro, European Monetary Union, Portugal, STVAR.

Abstract

This paper investigates the impact of euro area membership on the Portuguese economy, focusing on whether the benefits of integration have outweighed the costs amidst ongoing economic uncertainties. Earlier research employed a VAR model with a discrete change in 1999 to capture the impact of adopting the euro. Instead, this paper uses a Smooth Transition Vector Autoregressive (STVAR) model. The STVAR model allows for the possibility that the adoption of the euro had a gradual effect on the Portuguese economy. This assumption better aligns with the historical process that culminated in the euro’s adoption, which involved several stages of gradual progress. As expected, we find a positive impact of adopting the euro on inflation stability and interest rates. However, in contrast to previous research, the results presented in this paper indicate that euro area membership has also positively affected Portuguese real per capita GDP.

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