Has the Euro paid off? A study of the trade-induced welfare effects of the EMU

Silviano Esteve-Pérez, Salvador Gil-Pareja, Rafael Llorca-Vivero and Jordi Paniagua ()
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Rafael Llorca-Vivero: Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain)

No 2103, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper aims to provide policy-relevant insights into the Euro effect. Relying on partial equilibrium estimates using a new dataset that comprises bilateral international and intranational trade flows of 69 countries during the period 1986-2016, we estimate a general equilibrium gravity model that allows us to quantify the welfare effect of the Euro as well as its impact on consumer prices and producer prices. The results of three counterfactual experiments indicate that the Euro has been successful at increasing welfare for Economic and Monetary Union (EMU) and non-EMU member countries. Our results suggest that a two-speed Euro design would have further increased welfare, albeit its distributional effects within countries, i.e., for consumers and producers. The growth effects of the Euro are mainly driven by trade creation outside the EMU, questioning the cohesiveness of the Euro as an optimum currency area.

Keywords: Euro; trade; welfare; structural gravity; general equilibrium (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-eec, nep-int and nep-mon
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