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What if the euro had never been launched? A counterfactual analysis of the macroeconomic impact of euro membership

Author

Listed:
  • Emmanuel Dubois

    () (PESOR, University of Paris XI)

  • Jerome Hericourt

    () (EQUIPPE, University of Lille and CES, University of Paris 1)

  • Valerie Mignon

    () (EconomiX-CNRS, University of Paris Ouest and CEPII)

Abstract

The aim of this paper is to gauge quantitatively the macroeconomic impact of EMU membership. Building on the Global VAR framework designed by Pesaran et al. (2004), we want to shed light on the following important questions: What if the euro had never been launched? How would national outputs and inflation rates have evolved? We show that monetary unification promoted lower interest rates and higher output in most euro area (EA) countries, relatively to a situation where national monetary policies would have followed a German-type one. If national monetary policies had adopted British monetary preferences after September 1992 however, this would have led to higher interest rates, depreciations of national exchange rates and higher output in most EA countries, especially over the 1992-1998 period. This is particularly true for the three biggest countries of the EA (France, Germany and Italy). Besides, the single currency regime probably did not have a massive impact on price developments.

Suggested Citation

  • Emmanuel Dubois & Jerome Hericourt & Valerie Mignon, 2009. "What if the euro had never been launched? A counterfactual analysis of the macroeconomic impact of euro membership," Economics Bulletin, AccessEcon, vol. 29(3), pages 2241-2255.
  • Handle: RePEc:ebl:ecbull:eb-09-00317
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P70.pdf
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    References listed on IDEAS

    as
    1. Eichengreen, Barry, 1990. "Is Europe an Optimum Currency Area?," CEPR Discussion Papers 478, C.E.P.R. Discussion Papers.
    2. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
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    7. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
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    Citations

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    Cited by:

    1. Alexander Chudik & M. Hashem Pesaran, 2016. "Theory And Practice Of Gvar Modelling," Journal of Economic Surveys, Wiley Blackwell, vol. 30(1), pages 165-197, February.
    2. Gauvin, Ludovic & Rebillard, Cyril, 2013. "Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model," MPRA Paper 65457, University Library of Munich, Germany.
    3. Hamza Bennani, 2013. "Does the ECB consider the persistence of inflation differentials?," Economics Bulletin, AccessEcon, vol. 33(3), pages 2129-2139.
    4. Hamza Bennani, 2012. "National influences inside the ECB: an assessment from central bankers' statements," Working Papers hal-00992646, HAL.

    More about this item

    Keywords

    Euro; counterfactual analysis; global VAR.;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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