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The impact of the euro on euro area GDP per capita

Author

Listed:
  • Cristina Fernández

    (Banco de España)

  • Pilar García Perea

    (Banco de España)

Abstract

This paper poses the following question: what would euro area GDP per capita have been, had the monetary union not been launched? To this end we use the synthetic control methodology. We find that the euro did not bring the expected jump to a permanent higher growth path. During the early years of the monetary union, aggregate GDP per capita in the euro area rose slightly above the path predicted by its counterfactual; but since the mid-2000s, these gains have been completely eroded. Central European countries – Germany, the Netherlands and Austria – did not seem to obtain any gains or losses from the adoption of the euro. Ireland, Spain and Greece registered positive and significant gains, but only during the expansionary years that followed the launch of the euro, while Italy and Portugal quickly lagged behind the GDP per capita predicted by their counterfactual. We test the robustness of the synthetic estimation not only to the exclusion of any particular country from the donor pool but also to the omission of each of the selected determinants of GDP per capita and to the reduction of the dimensions in the optimisation programme, namely the number of GDP determinants.

Suggested Citation

  • Cristina Fernández & Pilar García Perea, 2015. "The impact of the euro on euro area GDP per capita," Working Papers 1530, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1530
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/15/Fich/dt1530e.pdf
    File Function: First version, November 2015
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Euro Area Growth and European Institutional Reforms," Bank of Lithuania Occasional Paper Series 24, Bank of Lithuania.
    2. Hope, David, 2016. "Estimating the effect of the EMU on current account balances: A synthetic control approach," European Journal of Political Economy, Elsevier, vol. 44(C), pages 20-40.
    3. Diaz del Hoyo, Juan Luis & Dorrucci, Ettore & Heinz, Frigyes Ferdinand & Muzikarova, Sona, 2017. "Real convergence in the euro area: a long-term perspective," Occasional Paper Series 203, European Central Bank.
    4. repec:ipf:psejou:v:41:y:2017:i:2:p:159-205 is not listed on IDEAS
    5. Moshammer, Edmund & Pierluigi, Beatrice & Masuch, Klaus, 2016. "Institutions, public debt and growth in Europe," Working Paper Series 1963, European Central Bank.
    6. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    7. Masuch, Klaus & Moshammer, Edmund & Pierluigi, Beatrice, 2016. "Institutions and Growth in Europe," CEPS Papers 11482, Centre for European Policy Studies.
    8. Loewald, Christopher & Wörgötter, Andreas, 2019. "Do monetary unions dream of structural reforms?," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2019, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).

    More about this item

    Keywords

    treatment effects; synthetic control method; monetary union;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F15 - International Economics - - Trade - - - Economic Integration
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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