The Macroeconomic Impact of the Euro

Veronika Akhmadieva, Ron P. Smith

Abstract


This paper examines whether the establishment of the euro caused structural breaks in the main macroeconomic relationships of member countries. It compares eight original members of the common currency with four European countries that did not join. The analysis constructs counterfactuals using both single equation models and a six equation vector autoregression with foreign exogenous variables, VARX*, explaining output, inflation, equity prices, exchange rates and short and long interest rates. It considers which equations changed the most and the most likely dates for any structural break.

Keywords


euro; structural-breaks; GVAR.

JEL Codes


C5; E5; F4.

Full Text:

PDF

References


Aksoy, Y., De Grauwe, P., and Dewachter, H., 2002. Do asymmetries matter for European monetary policy? European Economic Review, 46(3), 443-469. http://dx.doi.org/10.1016/S0014-2921(01)00160-X

Alogoskoufis, G. A., 2019. Greece and the Euro: A Mundellian Tragedy. CGK Working Paper, 2019-01.

Campos, N. F., and Macchiarelli, C., 2018. Symmetry and Convergence in Monetary Unions. LEQS Paper(131). http://dx.doi.org/10.2139/ssrn.3137204

Caruso, A., Reichlin, L., and Ricco, G., 2018. Financial and Fiscal Interaction in the Euro Area Crisis: This Time was Different. Warwick Economics Research Papers, 1167.

De Grauwe, P., 2013. The Political Economy of the Euro. The Annual Review of Political Science, 16(9), 153-170. http://dx.doi.org/10.1146/annurev-polisci-060911-085923

De Grauwe, P., 2016. The legacy of the Eurozone crisis and how to overcome it. Journal of Empirical Finance, 39, 147-155. http://dx.doi.org/10.1016/j.jempfin.2016.01.015

De Grauwe, P., 2018. Economics of Monetary Union (12th ed.): Oxford University Press.

De Grauwe, P., and Ji, Y., 2013. Self-fulfilling crises in the Eurozone: An empirical test. Journal of International Money and Finance, 15, 34.

Farhi, E., and Werning, I., 2017. Fiscal Unions. The American Economic Review, 107(12), 3788-3834. http://dx.doi.org/10.1257/aer.20130817

Mohaddes, K., and Raissi, M., 2018. Compilation, Revision and Updating of the Global VAR (GVAR) Database, 1979Q2-2016Q4: University of Cambridge: Faculty of Economics.

Pesaran, M. H., 2015. Time series and panel data econometrics: Oxford University Press. http://dx.doi.org/10.1093/acprof:oso/9780198736912.001.0001

Pesaran, M. H., Smith, L. V., and Smith, R. P., 2007. What if the UK or Sweden had joined the Euro in 1999? An empirical evaluation using a Global VAR. International Journal of Finance & Economics, 12(1), 55-87. http://dx.doi.org/10.1002/ijfe.312

Pesaran, M. H., and Smith, R. P., 1998. Structural analysis of cointegrating VARs. Journal of Economic Surveys, 12(5), 471-505. http://dx.doi.org/10.1111/1467-6419.00065

Pesaran, M. H., and Smith, R. P., 2016. Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing. Research in Economics, 70(2), 262-280. http://dx.doi.org/10.1016/j.rie.2016.01.004

Pesaran, M. H., and Smith, R. P., 2018. Tests of Policy Interventions in DSGE Models. Oxford Bulletin of Economics and Statistics, 80(3), 457-484. http://dx.doi.org/10.1111/obes.12224

Potjagailo, G., 2017. Spillover effects from Euro area monetary policy across Europe: A factor-augmented VAR approach. Journal of International Money and Finance, 72, 127-147. http://dx.doi.org/10.1016/j.jimonfin.2017.01.003

Rose, A. K., 2017. Why do estimjates of the EMU effect on trade vary so much? Open Economies Review, 28(1), 1-18. http://dx.doi.org/10.1007/s11079-016-9420-1

Rudebusch, G., and Svensson, L., 1999. Policy Rules for Inflation Targeting Monetary Policy Rules (pp. 203-262). US: University of Chicago Press.

Saka, O., Fuertes, A.-M., and Kalotychou, E., 2015. ECB policy and Eurozone fragility: Was De Grauwe right? Journal of International Money and Finance, 54(C), 168-185. http://dx.doi.org/10.1016/j.jimonfin.2015.03.002

Smith, R. P., 2009. EMU and the Lucas Critique. Economic Modelling, 26(4), 744-750. http://dx.doi.org/10.1016/j.econmod.2008.07.008




DOI: http://dx.doi.org/10.47743/saeb-2019-0037

Refbacks

  • There are currently no refbacks.
10.47743/saeb-2021-0009