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The Euro Area: Does one currency fit all?

Author

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  • Christos Nikas
  • Nikolaos Stoupos
  • Apostolos Kiohos

Abstract

The sovereign debt crisis since the late 2000s in the Euro Area revealed that, in reality, there are two monetary unions in Europe: the core and the periphery. The core-north countries have sounder fiscal balances and lower inflation rates, whereas the periphery-south ones are more prone to higher inflation and public deficits. The principal aim of this paper is to explore which countries handle the nominal exchange rate of the euro. By doing this we will effectively challenge the statement ‘.one size fits all’ upon which the euro project was built. We used the real exchange rates of the initial 12 Eurozone members as an empirical instrument. Our evidence is based on the bivariate regression analysis and the Asymmetric Component GARCH (AC-GARCH) model. We discovered that the countries of the Eurozone core influence more the euro nominal exchange rate than the periphery ones. In addition, the euro is more vulnerable to the volatility shocks of the German and the French real exchange rates.

Suggested Citation

  • Christos Nikas & Nikolaos Stoupos & Apostolos Kiohos, 2019. "The Euro Area: Does one currency fit all?," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 642-658, September.
    • Handle: RePEc:taf:irapec:v:33:y:2019:i:5:p:642-658
    DOI: 10.1080/02692171.2018.1516742
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    Cited by:

    1. Stoupos, Nikolaos & Kiohos, Apostolos, 2022. "Euro area stock markets integration: Empirical evidence after the end of 2010 debt crisis," Finance Research Letters, Elsevier, vol. 46(PB).
    2. Stoupos, Nikolaos & Kiohos, Apostolos, 2019. "Scandinavia: Towards the European Monetary Union?," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 278-291.
    3. Marek Louzek, 2023. "Is the Eurozone an Optimum Currency Area?," International Journal of Economic Sciences, European Research Center, vol. 12(2), pages 63-82, November.
    4. Ioannatos, Petros E., 2021. "Systematic growth asymmetry in the Eurozone? Evidence from a natural experiment," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).

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