From Hero to Zero? The Role of the Euro in the Current Crisis: Theory and some Empirical Evidence

Georgios Karras

International Advances in Economic Research, 2011, vol. 17, issue 3, 300-314

Abstract: A simple theoretical model of monetary unification and data from 11 euro members are used to investigate the common currency’s role in the macroeconomic performance of these countries. Euro membership has been typically accompanied by lower (or steady) inflation, but also by higher business-cycle volatility. In addition, synchronization of cyclical output was substantially affected by the common currency only in Greece (where it declined considerably) and Finland and Ireland (where it increased). Consistent with the theoretical predictions, the empirical evidence shows a strong negative relationship between cyclical synchronizations and volatilities, which however is not much stronger under the euro than it was during the Maastricht period. Copyright International Atlantic Economic Society 2011

Keywords: Euro; Monetary integration; E42; F36; F42 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s11294-011-9304-5

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