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Risk sharing and the adoption of the Euro

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  • Ferrari, Alessandro
  • Rogantini Picco, Anna

Abstract

This paper empirically evaluates whether adopting a common currency has changed the level of consumption smoothing of euro area member states. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali et al. (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro adoption has reduced risk sharing and consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.

Suggested Citation

  • Ferrari, Alessandro & Rogantini Picco, Anna, 2023. "Risk sharing and the adoption of the Euro," Journal of International Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:inecon:v:141:y:2023:i:c:s0022199623000132
    DOI: 10.1016/j.jinteco.2023.103727
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    Cited by:

    1. Donadelli, M. & Gufler, I. & Paradiso, A., 2024. "Financial market integration: A complex and controversial journey," International Review of Financial Analysis, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    Risk sharing channels; European monetary union; Synthetic control method;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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