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Did the Euro Change the Effect of Fundamentals on Growth and Uncertainty?

B. E. Journal of Macroeconomics (2014)

Jaime Luque
Abderrahim Taamouti

We present empirical evidence on whether the introduction of the euro has changed the effect of economic fundamentals on the growth rates of euro countries GDPpc and GDPpc volatility. We find that there is a statistically significant structural break in the impact of increments in government debt on both economic growth and uncertainty. In particular, after adoption of the euro increments in government debt decreased growth and increased uncertainty. These results are robust to a battery of checks, including exclusion of the recent financial crisis period, comparison with non-euro European countries, and controlling for different debt/GDP ratios.

GDP growth rate; GDP growth rate volatility; fundamentals; government debt; currency union; euro zone

Political Economy, Public Economics and Regional Economics

2014

Jaime Luque and Abderrahim Taamouti. "Did the Euro Change the Effect of Fundamentals on Growth and Uncertainty?" B. E. Journal of Macroeconomics Vol. 14 Iss. 1 (2014)
Available at: http://works.bepress.com/luque/12/

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