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Does one size fit all in the Euro Area? Some counterfactual evidence

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  • Destefanis, Sergio
  • Fragetta, Matteo
  • Gasteiger, Emanuel

Abstract

This paper examines whether Euro Area countries would have faced a more favorable inflation output variability tradeoff without the Euro. We provide evidence supporting this claim for the periods of the Great Recession and the Sovereign Debt Crisis. The deterioration of the tradeoff becomes insignificant only after Draghi's 'whatever it takes' announcement. Results show that the detrimental effect of the Euro is more severe for peripheral countries. We base our results on a novel empirical strategy that, consistently with monetary theory, models the joint determination of the variability of inflation and output conditional on structural supply and demand shocks.

Suggested Citation

  • Destefanis, Sergio & Fragetta, Matteo & Gasteiger, Emanuel, 2021. "Does one size fit all in the Euro Area? Some counterfactual evidence," ECON WPS - Working Papers in Economic Theory and Policy 05/2019, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit, revised 2021.
    • Handle: RePEc:zbw:tuweco:052019
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    More about this item

    Keywords

    Euro Area; Monetary Policy; Difference-in-Differences;
    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
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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