On the Macroeconomic Performance of the Euro Area

44 Pages Posted: 25 Jul 2018

See all articles by Sergio Destefanis

Sergio Destefanis

University of Salerno

Matteo Fragetta

University of Salerno - Department of Economics

Emanuel Gasteiger

Free University of Berlin (FUB)

Date Written: May 24, 2018

Abstract

This paper examines whether Euro Area countries would have faced a more favorable inflation output variability tradeoff without the Euro. We provide evidence that this claim is true for the periods of the Great Recession and the European Sovereign Debt Crisis. For the Euro Area as a whole, the deterioration of the tradeoff becomes insignificant with Draghi’s ‘whatever it takes’ announcement onwards. However, our more detailed analysis shows that the detrimental effect of the Euro is more severe for peripheral Euro Area countries and that ECB policies have been less effective for these countries. These findings point to structural differences among Euro Area countries as the explanation of the detrimental effect of the Euro as ECB policies can be denoted ‘one size must fit all’ policies. We base our results on a novel empirical strategy that, consistent with monetary theory, models the joint determination of the variability of inflation and output conditional on structural supply shocks. Moreover, our findings are robust to potential endogeneity concerns related to adopting the Euro.

Keywords: Euro Area, Monetary Policy, Difference-in-Differences

JEL Classification: C32, E50, F45

Suggested Citation

Destefanis, Sergio and Fragetta, Matteo and Gasteiger, Emanuel, On the Macroeconomic Performance of the Euro Area (May 24, 2018). Available at SSRN: https://ssrn.com/abstract=3208136 or http://dx.doi.org/10.2139/ssrn.3208136

Sergio Destefanis (Contact Author)

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Matteo Fragetta

University of Salerno - Department of Economics ( email )

Via John Paul II, 132
Fisciano (SA), 84084
Italy

Emanuel Gasteiger

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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