Did the euro change the effect of fundamentals on growth and uncertainty?

Luque Jaime () and Abderrahim Taamouti
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Luque Jaime: University of Wisconsin – Madison, 5259 Grainger Hall, 975 University Ave., Madison, WI 53706, USA

The B.E. Journal of Macroeconomics, 2014, vol. 14, issue 1, 625-660

Abstract: We present empirical evidence on whether the introduction of the euro has changed the effect of economic fundamentals on the growth rates of euro countries’ GDPpc and GDPpc volatility. We find that there is a statistically significant structural break in the impact of increments in government debt on both economic growth and uncertainty. In particular, after adoption of the euro increments in government debt decreased growth and increased uncertainty. These results are robust to a battery of checks, including exclusion of the recent financial crisis period, comparison with non-euro European countries, and controlling for different debt/GDP ratios.

Keywords: currency union; euro zone; fundamentals; GDPpc growth rate; GDPpc growth rate volatility; government debt (search for similar items in EconPapers)
JEL-codes: E02 E52 F00 F02 F15 F33 F34 F36 F42 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Did the Euro Change the Effect of Fundamentals on Growth and Uncertainty? (2013)
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DOI: 10.1515/bejm-2013-0133

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