Adopting the Euro: A Synthetic Control Approach

Gabriel, Ricardo Duque; Pessoa, Ana

doi:10.2139/ssrn.3563044

Cited by 4 publications

(9 citation statements)

References 33 publications

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“…More recently, the studies by Fernandez & Garcia Perea (2015), Verstegen et al (2017), Lin & Chen (2017), Puzzello & Gomis-Porqueras (2018) and Gabriel & Pessoa (2020) have used this method to estimate the euro net effect on GDP per capita for some or all of the twelve early euro adopters. Table 1 summarizes their results.…”

Section: Synthetic Control Methods To Estimate Euro Net Effectsmentioning

confidence: 99%

“…More recently, several empirical studies by Fernandez & Garcia Perea (2015), Verstegen et al (2017), Lin & Chen (2017), Gomis-Porqueras & Puzzello (2018) and Gabriel & Pessoa (2020) have attempted to provide such an ex-post benchmark by applying the synthetic control method (SCM) by Abadie & Gardeazabal (2003) and Abadie et al (2010Abadie et al ( , 2015 (AGDH hereinafter). However, the evidence by applying this method is not overly consistent, leading to the conclusion that the method is not too robust to different settings of the adjustment screws such as changes in the donor pool, selection of covariates and the use of pre-intervention outcomes as separate predictors.…”

Section: Introductionmentioning

confidence: 99%

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Structural time series models and synthetic controls—assessing the impact of the euro adoption

Dreuw

2022

Empir Econ

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So far, empirical research on an ex-post benchmark of the euro adoption has relied on the synthetic control method by Abadie & Gardeazabal (Am Econ Rev 93:112-132, 2003) and Abadie et al. (J Am Stat Assoc 105:493-505, 2010, Am J Polit Sci, 59:495-510, 2015). However, the evidence obtained with this method is not overly consistent, leading to the conclusion that the method is not too robust to different settings of the adjustment screws. Using a new method developed by Harvey & Thiele (J Appl Econ 36:71–85, 2021) based on structural time series models, I find that France and Italy are clear losers from the euro while there are no real winners until 2019. Spain, Netherlands, Greece gain in the period before the financial crisis, but afterwards they lose. In fact, only the German economy is robust to the two crises but it loses until 2008. Relating the theories of optimum currency areas to the estimated gaps of the euro adopters from their synthetic controls, I find that openness, real convergence, and net migration are the main drivers of gains from a euro adoption, while the main drivers of losses are low levels of competitiveness, fiscal instability and labour market rigidity. Examining the crisis channels of the financial and euro crisis shows that fiscal instability, labour market rigidity and also business cycle synchronization cause large losses during the crises. Net migration helps to dampen these shocks. While openness is beneficial during the pre-crises period, it cannot help dampen the shock of the crises.

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Section: Synthetic Control Methods To Estimate Euro Net Effectsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Structural time series models and synthetic controls—assessing the impact of the euro adoption

Dreuw

2022

Empir Econ

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“…The next step involves finding critical determinants in interventions, which may include country-or treatment-specific characteristics. A GDP decomposition analysis may also be used (Gabriel & Pessoa, 2020). While we focus on the first step ( case-by-case evaluation), we argue that our results can shed light on the ongoing debate surrounding the preconditions under which FTAs promote economic growth in developing countries (Chauffour & Maur, 2011;Helpman, 2018).…”

Section: Empirical Strategymentioning

confidence: 99%

“…Puzzello and Gomis-Porqueras ( 2018) and Gabriel and Pessoa (2020) apply said method to several countries with mixed results, while Saia (2017) finds that the U.K. bore a cost for staying out of the Eurozone, in terms of lower aggregate trade flows, both with Eurozone members and non-members.…”

Section: Empirical Strategymentioning

confidence: 99%

The effect of a free trade agreement with the United States on member countries' per capita GDP: A synthetic control analysis

Robertis

Garduño-Rivera

2021

Regional Science Policy & Practice

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This study employs the synthetic control method (SCM) to estimate the economic effects of signing free trade agreements (FTAs) with the United States. This method allows for a counterfactual –the country's per capita GDP had it not signed a FTA–, which can be compared with the observed per capita GDP. This difference speaks to the causal impact of the FTA. We principally find that FTAs seem to have a heterogeneous impact. In particular, there is evidence that signing a FTA with the U.S. had a positive impact on Chile and Jordan's per capita GDP and that NAFTA harmed Mexico's per capita GDP. In several other cases, no significant economic impact is discernible. Besides, the more a country depends on the U.S. for its trade, the less beneficial signing a FTA with the U.S. is. This article contributes to the debate on the effectiveness of trade as a development strategy. In particular, the SCM opens up the possibility of a “case‐by‐case” analysis, ultimately revealing that a FTA with the U.S.–a country situated at the world's technology frontier–has heterogeneous outcomes and, by itself, does not guarantee economic development (obtained through a higher per capita GDP).

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“…Terzi (2020) relies on a propensity score matching model to build a counterfactual for the per capita GDP in the euro area countries and study the impact of macroeconomic adjustment in the euro area. The closest to our paper are Puzzello and Gomis-Porqueras (2018) and Duque Gabriel and Pessoa (2020), who use the SCM to evaluate the impact of the euro on real per capita income. These two papers focus on the effects of the euro on the general economic performance, which is measured through real per capita income.…”

Section: Introductionmentioning

confidence: 99%

Risk Sharing and the Adoption of the Euro

Ferrari¹,

Picco²

2022

Preprint

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This paper empirically evaluates whether adopting a common currency has changed the level of consumption smoothing of euro area member states. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali, Sorensen and Yosha (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro adoption has reduced risk sharing and consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.

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Adopting the Euro: A Synthetic Control Approach

Cited by 4 publications

References 33 publications

Structural time series models and synthetic controls—assessing the impact of the euro adoption

Structural time series models and synthetic controls—assessing the impact of the euro adoption

The effect of a free trade agreement with the United States on member countries' per capita GDP: A synthetic control analysis

Risk Sharing and the Adoption of the Euro

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