Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Were real effective exchange rates (REER) of Euro area member countries drastically misaligned at the outbreak of the global financial crisis? The answer is difficult to determine because economic theory gives no simple guideline for determining the equilibrium values of real exchange rates, and the determinants of those values might have been distorted as well. To overcome these limitations, we use synthetic matching to construct a counterfactual economy for each member as a linear combination of a large set of non-Euro area countries. We find that Euro area crisis countries are best described by a mixture of advanced and emerging economies. Comparing the actual REER with those of the counterfactuals gives sensible estimates of the misalignments at the start of the crisis: All peripheral countries were strongly overvalued, while high undervaluation is only observed for Finland. Terms of use: Documents in

Estimating the effect of the EMU on current account balances: A synthetic control approach

“…The synthetic control method has previously been used to assess the economic benefits of the EU (Campos et al, 2014), the impact of the Stability and Growth Pact on government debt in euro area countries (Koehler and König, 2015) and the effect of the EMU on GDP per capita (Fernández and Perea, 2015) and real exchange rates (El-Shagi et al, 2016). To the best of my knowledge, this is the first time this approach has been used to study the effect of the EMU on current account balances.…”

“…Previous studies have investigated the effect of the EMU on a whole range of economic indicators, such as trade (Baldwin, 2006;Baldwin et al, 2008;Bun and Klaassen, 2007;Micco et al, 2003), foreign direct investment (De Sousa and Lochard, 2011;Petroulas, 2007), cross-border banking (Blank and Buch, 2007;Coeurdacier and Martin, 2009;Spiegel, 2009), real exchange rates (El-Shagi et al, 2016), GDP per capita (Fernández and Perea, 2015), and wage growth and unemployment (Grüner, 2010;Mikosch and Sturm, 2012). Mongelli and Vega (2006) provide an overview of the early literature on the effects of the EMU on economic performance, financial structures and product and labor market institutions.…”

Macroeconomic Effects of the European Monetary Union: A Counterfactual Analysis

“…Table 1 shows the predictor variables, chosen to represent these broad theoretical categories. The choice of such variables is becoming standard in synthetic counterfactual literature on macroeconomic issues (Abadie and Gardeazabal, 2003;El-Shagi et al, 2014;Campos et al, 2014;Billmaer and Nanncini, 2013).…”

Cash Transfers and Food Security in Sub‐Saharan Africa

“… For recent contributions to the synthetic control approach, see Billmeier and Nannicini (), Horiuchi and Mayerson (), El‐Shagi et al . () and Grier and Maynard (). …”

“…Moreover, these studies usually look at the impacts on the CT beneficiaries, therefore disregarding possible (positive or negative) externalities on non-beneficiaries.3 For recent contributions to the synthetic control approach, seeBillmeier and Nannicini (2013),Horiuchi and Mayerson (2015),El-Shagi et al (2016) andGrier and Maynard (2016). © 2018 Economic Society of South Africa .…”