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What if the UK had Joined the Euro in 1999?

Author

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  • Sandeep Mazumder

    ()

  • Ryan Pahl

    ()

Abstract

The issue of whether the UK should join the European single currency has been fiercely debated for the past two decades. However little research has been devoted to forecasting hypothetical projections for important UK economic variables, assuming that the UK had in fact joined the euro at its inception in 1999. This paper focuses on estimating counterfactual series for two key macroeconomic variables: unemployment and output. We do this by estimating Phillips curves for the UK, which we then use to compute counterfactual series for what unemployment and output may have looked like for the UK had they adopted the single currency in 1999. Based on the comparison of our forecasts with observed data, we find that the UK was correct in not joining the euro; had they adopted the European single currency in 1999, unemployment would have been higher and output would have been lower. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Sandeep Mazumder & Ryan Pahl, 2013. "What if the UK had Joined the Euro in 1999?," Open Economies Review, Springer, vol. 24(3), pages 447-470, July.
  • Handle: RePEc:kap:openec:v:24:y:2013:i:3:p:447-470
    DOI: 10.1007/s11079-012-9245-5
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    References listed on IDEAS

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    1. Patrick Minford & David Meenagh & Bruce Webb, 2004. "Britain and EMU: Assessing the Costs in Macroeconomic Variability," The World Economy, Wiley Blackwell, vol. 27(3), pages 301-358, March.
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    3. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    4. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    5. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    6. Koedijk, Kees G. & Tims, Ben & van Dijk, Mathijs A., 2004. "Purchasing power parity and the euro area," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1081-1107.
    7. Claude Lopez & David H. Papell, 2007. "Convergence to Purchasing Power Parity at the Commencement of the Euro," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 1-16, February.
    8. Mazumder, Sandeep, 2011. "The empirical validity of the New Keynesian Phillips curve using survey forecasts of inflation," Economic Modelling, Elsevier, vol. 28(6), pages 2439-2450.
    9. Jerry Coakley & Stuart Snaith, 2004. "Testing for Long Run Relative PPP in Europe," Money Macro and Finance (MMF) Research Group Conference 2004 34, Money Macro and Finance Research Group.
    10. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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    Citations

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    Cited by:

    1. Emilia Gyoerk, 2017. "Economic Costs and Benefits of EMU Membership from the Perspective of a Non-member," Open Economies Review, Springer, vol. 28(5), pages 893-921, November.
    2. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2014. "Purchasing Power Parity Between the UK and Germany: The Euro Era," Open Economies Review, Springer, vol. 25(4), pages 677-699, September.
    3. Brzoza-Brzezina, Michał & Makarski, Krzysztof & Wesołowski, Grzegorz, 2014. "Would it have paid to be in the eurozone?," Economic Modelling, Elsevier, vol. 41(C), pages 66-79.

    More about this item

    Keywords

    UK economy; Eurozone; Euro; European Monetary Union; E20; E42; E60; F02; F42;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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