Who did it? A European Detective Story Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool

Abstract

During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.

Banking Union: Where does it stand? What next?

“…More specifi cally, institutional integration plays a positive role for growth, overall and for the periphery in particular. Looking into the variables which are linked to differences in growth rates the fi ndings affi rm a positive association of the EU institutional and political integration with long-run growth, for periphery countries particularly (Comunale and Mongelli 2019a). In the opposite direction, deeper fi nancial integration seems to have benefi cial effects on the core economies, but it is not signifi cant in the periphery (Comunale and Mongelli 2019b).…”

Exchange Rate Fluctuations and the Financial Channel in Emerging Economies

“…This is very important in our case, given the high number of variables ( 7) and especially their differing natures (macroeconomic vs. financial measures). As for the latter, as mentioned in Comunale and Mongelli (2019), there is no consensus on the identification of shocks when financial variables and macroeconomic variables are included in a Structural VAR. This also holds in the context of exchange rates, which are jointly determined with macroeconomic fundamentals.…”

Euro Area Growth and European Institutional Reforms

“…This analysis tries to include real, financial, monetary and institutional factors in order to explain GDP growth in euro area, various sub-sample as well as preand post-crisis. This section describes these variables, while more details are provided in a companion paper (Comunale and Mongelli, 2018). 5 The real GDP growth data for the countries as well as the real and financial cycles come from the database of the above-mentioned ESCB WGEM team (see ECB, 2018).…”