Two different eurozones: disentangling the labyrinth of the European economic dynamics

Celia Gil-Bermejo, Antonio Golpe, Antonio Jesús Sánchez Fuentes and José Carlos Vides González

Journal of Economic Studies, 2025, vol. 52, issue 8, 1471-1486

Abstract: PurposeThis paper aims to analyze the possible interdependencies among fiscal, monetary and growth variables by applying multivariate Granger Causality and determining an ultimate “causality path” excluding redundant relationships based on a complex endogenous system for each country.Design/methodology/approachWe adopt a novel approach to test Granger Causality within the framework of Vector Autoregressive models. This approach enables us to expand the scope of relevant variables, which is typically limited to two or three, previously mentioned. Moreover, we employ graph-theoretic techniques for causal analysis, utilizing the PC algorithm (Colombo and Maathuis, 2014; Spirtes et al., 2000) to determine the optimal causal ordering among all statistically significant relationship.FindingsOur findings highlight the continued division between “core” and “peripheral” Euro area countries, with monetary policy variables playing a crucial role in the economic growth of “core” nations. Stable inflation contributes to sustained growth in these countries, while fiscal variables contribute to growth across most nations.Originality/valueThe literature concerning the relationship among different macroeconomic variables such as prices, output and monetary policy indicators such as interest rates and interest payments, may be incomplete or misguided due to the exclusion of relevant information because studies are mostly based on a bivariate or a trivariate framework dynamics. In this sense, one goal is the extension of the system, which may be crucial, because the omission of relevant variables may lead to biased results. Furthermore, we apply graph-theoretic methods for causal analysis by using the PC algorithm to determine the ultimate causal sequence among all possible ones and, finally, we aim to understand and disentangle the transmission process and the relationships among economic policies in a Euro area country-level analysis.

Keywords: Monetary policy; Prices; Eurozone; Causality path (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/jes/article/52/8/1471/1254 ... es-disentangling-the (text/html)
https://www.emerald.com/jes/article-pdf/52/8/1471/ ... s-06-2024-0394en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-06-2024-0394

DOI: 10.1108/JES-06-2024-0394

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().