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Did the euro change the effect of fundamentals on growth and uncertainty?

Author

Listed:
  • Luque Jaime

    (University of Wisconsin – Madison, 5259 Grainger Hall, 975 University Ave., Madison, WI 53706, USA)

  • Taamouti Abderrahim

    (Carlos III University of Madrid and Durham University Business School, Mill Hill Lane, Durham DH1 3LB, UK)

Abstract

We present empirical evidence on whether the introduction of the euro has changed the effect of economic fundamentals on the growth rates of euro countries’ GDPpc and GDPpc volatility. We find that there is a statistically significant structural break in the impact of increments in government debt on both economic growth and uncertainty. In particular, after adoption of the euro increments in government debt decreased growth and increased uncertainty. These results are robust to a battery of checks, including exclusion of the recent financial crisis period, comparison with non-euro European countries, and controlling for different debt/GDP ratios.

Suggested Citation

  • Luque Jaime & Taamouti Abderrahim, 2014. "Did the euro change the effect of fundamentals on growth and uncertainty?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-36, January.
    • Handle: RePEc:bpj:bejmac:v:14:y:2014:i:1:p:36:n:22
    DOI: 10.1515/bejm-2013-0133
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
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    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
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    Cited by:

    1. Luque, Jaime & Morelli, Massimo & Tavares, José, 2014. "A volatility-based theory of fiscal union desirability," Journal of Public Economics, Elsevier, vol. 112(C), pages 1-11.

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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F00 - International Economics - - General - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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