A1 Refereed original research article in a scientific journal
The price of the euro: evidence from sovereign debt markets
Authors: Erik Mäkelä
Publisher: Taylor & Francis
Publication year: 2016
Journal: Applied Economics
Journal name in source: APPLIED ECONOMICS
Journal acronym: APPL ECON
Volume: 48
Issue: 47
First page : 4510
Last page: 4525
Number of pages: 16
ISSN: 0003-6846
eISSN: 1466-4283
DOI: https://doi.org/10.1080/00036846.2016.1161714
Abstract
The objective of this article is to ascertain how the Economic and Monetary Union (EMU) in Europe has affected its members' long-term government bond yields. In order to estimate the effect, this article utilizes a synthetic control approach. The main finding is that the majority of the member countries did not receive economic gains from the EMU in sovereign debt markets. Synthetic counterfactual analysis finds strong evidence that Austria, Belgium, Finland, France and the Netherlands have paid a positive and substantial euro-premium in their 10-year government bonds since the adoption of the single currency. After the most recent financial crisis, government bond yields have been higher in all member countries compared to the situation that would have occurred without the monetary unification. This article concludes that from the viewpoint of sovereign borrowing, it would be beneficial for a country to maintain its own currency and monetary policy.
The objective of this article is to ascertain how the Economic and Monetary Union (EMU) in Europe has affected its members' long-term government bond yields. In order to estimate the effect, this article utilizes a synthetic control approach. The main finding is that the majority of the member countries did not receive economic gains from the EMU in sovereign debt markets. Synthetic counterfactual analysis finds strong evidence that Austria, Belgium, Finland, France and the Netherlands have paid a positive and substantial euro-premium in their 10-year government bonds since the adoption of the single currency. After the most recent financial crisis, government bond yields have been higher in all member countries compared to the situation that would have occurred without the monetary unification. This article concludes that from the viewpoint of sovereign borrowing, it would be beneficial for a country to maintain its own currency and monetary policy.
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