Risk sharing and the adoption of the Euro

Alessandro Ferrari and Anna Rogantini Picco

Journal of International Economics, 2023, vol. 141, issue C

Abstract: This paper empirically evaluates whether adopting a common currency has changed the level of consumption smoothing of euro area member states. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali et al. (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro adoption has reduced risk sharing and consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.

Keywords: Risk sharing channels; European monetary union; Synthetic control method (search for similar items in EconPapers)
JEL-codes: F32 F36 F41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: Risk Sharing and the Adoption of the Euro (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:141:y:2023:i:c:s0022199623000132

DOI: 10.1016/j.jinteco.2023.103727

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