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The euro: Did the markets cheer or jeer?

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  • Green, Christopher J.
  • Bai, Ye

Abstract

We examine if the introduction of the euro had significant and different effects on the stock markets of euro-zone countries, non-euro EU and accession countries, and non-EU countries. We argue that the introduction of the euro was equivalent to a market reform rather than an event whose impact was fully anticipated. Therefore, we use event study methods to examine the stock market responses to the introduction of the single currency in January 1999. We find significant cumulative abnormal returns (CARs) in euro and non-euro European stock markets, but not elsewhere. We investigated cross-sectional variations among countries by regressing the CARs on country inflation and interest rates, controlling for euro and non-euro membership. The results suggest that inflation and interest rates had a significant impact on cross-country variations in response to the euro, and that anti-inflation credibility was a central factor in these variations.

Suggested Citation

  • Green, Christopher J. & Bai, Ye, 2008. "The euro: Did the markets cheer or jeer?," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 431-446.
    • Handle: RePEc:eee:jpolmo:v:30:y:2008:i:3:p:431-446
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