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DOES THE LAUNCH OF THE EURO HINDER THE CURRENT ACCOUNT ADJUSTMENT OF THE EUROZONE?
Author(s) -
Wu Jowei,
Wu JyhLin
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12522
Subject(s) - economics , exchange rate , inflation (cosmology) , current account , monetary economics , independence (probability theory) , current (fluid) , econometrics , inflation rate , macroeconomics , monetary policy , physics , mathematics , statistics , theoretical physics , thermodynamics
This paper examines current account adjustments before and after the launch of the euro. Applying a dynamic panel model, we provide robust evidence to support that the adoption of the euro facilitates rather than hinders the adjustment of current accounts. This finding agrees with our results that the use of the euro assists real exchange rate and inflation rate adjustments. We also find that the independence of exchange rate regimes from current account, real exchange rate and inflation rate adjustments is observed when standard panel estimation methods are applied and when time‐varying smooth shifts in mean are not controlled. ( JEL C33, F32, F41)