Did the euro change the effect of fundamentals on growth and uncertainty? Articles uri icon

authors

  • LUQUE, JAIME
  • TAAMOUTI, ABDERRAHIM

publication date

  • August 2014

start page

  • 625

end page

  • 660

issue

  • 1

volume

  • 14

International Standard Serial Number (ISSN)

  • 2194-6116

Electronic International Standard Serial Number (EISSN)

  • 1935-1690

abstract

  • 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.

keywords

  • currency union; euro zone; fundamentals; gdppc growth rate; gdppc growth rate volatility; government debt; currency unions; policy; debt