Risk Sharing and the Adoption of the Euro

Alessandro Ferrari and Anna Rogantini Picco

Papers from arXiv.org

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, Sorensen and Yosha (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.

Date: 2022-05
New Economics Papers: this item is included in nep-ban, nep-dem, nep-eec and nep-mon
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Journal Article: Risk sharing and the adoption of the Euro (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2205.07009

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