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Better off without the Euro? A Structural VAR Assessment of European Monetary Policy

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  • Jan Philipp Fritsche
  • Patrick Christian Harms

Abstract

Modern OCA theory has developed different conclusions on when forming a currency union is beneficial. An important pragmatic question in this context is: Did delegating monetary policy to the ECB increase stress in the individual euro area countries? An SVAR analysis reveals that monetary stress has declined more in the euro area than in the euro areas’ doppelganger. The synthetic doppelganger is composed of other OECD countries. This result is independent of the identification strategy (sign restrictions/heteroskedasticity/Cholesky). The results can be rationalized by more formalized central banking and the euro becoming a dominant currency.

Suggested Citation

  • Jan Philipp Fritsche & Patrick Christian Harms, 2020. "Better off without the Euro? A Structural VAR Assessment of European Monetary Policy," Discussion Papers of DIW Berlin 1907, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1907
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    More about this item

    Keywords

    Economic and Monetary Union; ECB; euro area; structural vector autoregressions; monetary policy stress; sign restrictions; heteroskedasticity; dominant currency;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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