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Same Spain, less pain?

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  • Gomez-Gonzalez, Patricia
  • Rees, Daniel M.

Abstract

We explore how the Spanish economy would have performed in the aftermath of the 2008 financial crisis if it had retained an independent monetary policy rather than joining the euro. A novel aspect of our approach is that we set up and estimate a structural model that takes account of the break in the conduct of monetary policy that occurred when Spain joined the euro, including anticipation effects. On average, Spanish economic growth would have been around 0.8 percentage points higher and consumption growth 0.5 percentage points higher between 2008 and 2013 if Spain had retained an independent monetary policy. But because euro entry led to a large boom prior to the crisis, the level of economic activity would have been similar by late 2016, regardless of Spain’s monetary arrangements.

Suggested Citation

  • Gomez-Gonzalez, Patricia & Rees, Daniel M., 2018. "Same Spain, less pain?," European Economic Review, Elsevier, vol. 110(C), pages 78-107.
    • Handle: RePEc:eee:eecrev:v:110:y:2018:i:c:p:78-107
    DOI: 10.1016/j.euroecorev.2018.08.006
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    Cited by:

    1. Boscá, J.E. & Doménech, R. & Ferri, J. & Méndez, R. & Rubio-Ramírez, J.F., 2020. "Financial and fiscal shocks in the great recession and recovery of the Spanish economy," European Economic Review, Elsevier, vol. 127(C).
    2. Martinez-Martin Jaime & Morris Richard & Onorante Luca & Piersanti Fabio Massimo, 2024. "Merging Structural and Reduced-Form Models for Forecasting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(1), pages 399-437, January.
    3. Povilas Lastauskas & Julius Stakėnas, 2022. "Dancing Alone or Together: The Dynamic Effects of Independent and Common Monetary Policies," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, volume 43, pages 217-241, Emerald Group Publishing Limited.
    4. Daniel Rees, 2020. "What Comes Next?," BIS Working Papers 898, Bank for International Settlements.
    5. Piotr Nowaczyk & Joanna Hernik, 2020. "Adopting the Euro will Cause an Increase in Prices: A Study on Inflationary Processes in Euro Area Member States," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 377-403.
    6. Martínez-Martin, Jaime & Morris, Richard & Onorante, Luca & Piersanti, Fabio M., 2019. "Merging structural and reduced-form models for forecasting: opening the DSGE-VAR box," Working Paper Series 2335, European Central Bank.

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    More about this item

    Keywords

    Currency union; Counterfactual analysis; Monetary policy;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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