Did the Euro Increase Systemic Risk?
39 Pages Posted: 13 Jul 2013
Date Written: July 9, 2013
We examine the effect of the introduction of the euro on the level of systemic risk for countries that adopted the common currency (euro-zone countries). Our measure of systemic risk is ∆CoVaR, introduced by Adrian and Brunnermeier (2010). We analyze the 1990-2010 period, use a large cross-section of banks from more than 56 countries and implement differences-in-differences tests. We report a significant increase in systemic risk for euro-zone countries after the introduction of the euro. We explore different economic channels that may explain how the euro affected the countries’ systemic risk.
Keywords: systemic risk, euro, monetary union
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