Macroeconomic Effects of the European Monetary Union: A Counterfactual Analysis

Abstract

This is an empirical study on the effects of adopting a common currency, the euro, on a country's GDP, inflation rate, and public debt. It uses a synthetic counterfactual method, which predicts how the economy of a euro area member country would perform if, hypothetically, the country did not join the euro area. The results show that there is no generally positive or negative effect of using a common currency, but individual countries fare differently in different periods. A novelty in this paper is determining confidence intervals in the counterfactual method. Some examples concern Greece.

The Macroeconomic Impact of Recent Political Conflicts in Africa: Generalized Synthetic Counterfactual Evidence

“…Costalli al. (2014) measure the economic consequences of civil wars in a sample of 20 countries, while Colonescu (2017) proposes an empirical study on the effects of adopting a common currency (i.e. the euro) on a country's GDP, inflation and debt by trying to answer the following question: "what would a country's GDP have been if the country did not join the euro area, while the other countries did?…”

“…Following Colonescu (2017), there are 4 stages are required to construct a SC: i) the selection of the control group, ii) the construction of the counterfactual, iii) the prediction of the evolution of the outcome variable in the post-treatment period and finally, iv) the observation of the gap between the treated country and the counterfactual. Now let us describe the technical framework of the SC methodology established by Abadie, Diamond and Hainmueller (2010).…”

The Macroeconomic Influence of Recent Political Conflicts in Africa: Generalized Synthetic Counterfactual Evidence

“…Following Colonescu (2017), there are 4 stages required to construct a SC: i) the selection of the control group, ii) the construction of the counterfactual, iii) the prediction of the evolution of the outcome variable in the post-treatment period and finally, iv) the observation of the gap between the treated country and the counterfactual. Now let us describe the technical framework of the SC methodology established by Abadie et al (2010).…”

“…The data cover the 1980–2020 periods, both for the treated and the control groups. The selection is based on macroeconomic growth theory on applications of the synthetic control method (Abadie & Gardeazabal, 2003; Colonescu, 2017, inter alia ). We have 3 predictors of the outcome variable (GDP, investment and inflation) to assess nexuses from the shock.…”

Untitled

“…Of course, monetary policy relates to the value of the euro vis-à-vis other currencies (the exchange rate), the interest rate and the rate of inflation. On these issues many papers have been published in this and other journals of ATINER; see Binatli and Sohrabji (2019), Colonescu (2017Colonescu ( , 2018, Correia (2016), Correia and Carvalho (2016), Gambarotto et al (2019), Gentilucci (2020, Kallianiotis (2018), Klein (2021), Korus (2019), Leen (2016), Luchena Mozo (2017), Reid (2018), Siddiqui (2020), Sommeiller (2020), andTurnbull (2016).…”