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The impact of the euro on euro area GDP per capita

Cristina Fernández and Pilar García Perea
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Cristina Fernández: Banco de España
Pilar García Perea: Banco de España

No 1530, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper poses the following question: what would euro area GDP per capita have been, had the monetary union not been launched? To this end we use the synthetic control methodology. We find that the euro did not bring the expected jump to a permanent higher growth path. During the early years of the monetary union, aggregate GDP per capita in the euro area rose slightly above the path predicted by its counterfactual; but since the mid-2000s, these gains have been completely eroded. Central European countries – Germany, the Netherlands and Austria – did not seem to obtain any gains or losses from the adoption of the euro. Ireland, Spain and Greece registered positive and significant gains, but only during the expansionary years that followed the launch of the euro, while Italy and Portugal quickly lagged behind the GDP per capita predicted by their counterfactual. We test the robustness of the synthetic estimation not only to the exclusion of any particular country from the donor pool but also to the omission of each of the selected determinants of GDP per capita and to the reduction of the dimensions in the optimisation programme, namely the number of GDP determinants.

Keywords: treatment effects; synthetic control method; monetary union (search for similar items in EconPapers)
JEL-codes: C33 E42 F15 O52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Date: 2015-11
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1530

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