Does one size fit all in the Euro Area? Some counterfactual evidence

Sergio Destefanis, Matteo Fragetta () and Emanuel Gasteiger

Empirical Economics, 2024, vol. 67, issue 4, No 9, 1615-1647

Abstract: Abstract This paper examines whether Euro Area countries would have faced a more favorable inflation output variability tradeoff without the Euro. We provide evidence supporting this claim for the periods of the Great Recession and the Sovereign Debt Crisis. The deterioration of the tradeoff becomes insignificant only after Draghi’s ‘whatever it takes’ announcement. Results show that the detrimental effect of the Euro is more severe for peripheral countries. We base our results on a novel empirical strategy that, consistent with monetary theory, models the joint determination of the variability of inflation and output conditional on structural supply and demand shocks.

Keywords: Euro Area; Monetary policy; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: C32 E50 F45 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-024-02597-w

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