Macroeconomic Effects of the European Monetary Union: A Counterfactual Analysis

This is an empirical study on the effects of adopting a common currency, the euro, on a country’s GDP, inflation rate, and public debt. It uses a synthetic counterfactual method, which predicts how the economy of a euro area member country would perform if, hypothetically, the country did not join the euro area. The results show that there is no generally positive or negative effect of using a common currency, but individual countries fare differently in different periods. A novelty in this paper is determining confidence intervals in the counterfactual method. Some examples concern Greece.