arXiv 28 Jan 2026 · Econometrics
arXiv:2601.20169 · PDF · DOI · OpenAlex · Extracted main text
Does euro adoption affect long-run economic growth? Existing evidence is mixed, reflecting limited treated countries, long horizons that challenge inference, and heterogeneity across member states. We estimate causal dynamic and heterogeneous treatment effects using Causal Forests with Fixed Effects (CFFE), a machine-learning approach that combines causal forests with two-way fixed effects. Under a conditional parallel-trends assumption, we find that euro adoption reduced annual GDP growth by 0.3-0.4 percentage points on average. Effects emerge shortly after adoption and stabilize after roughly a decade. Average effects mask substantial heterogeneity. Countries with lower initial GDP per capita experience larger and more persistent growth shortfalls than core economies. Weaker consumption and productivity growth contribute to the overall effect, while improvements in net exports partially offset these declines. A two-country New Keynesian DSGE model with hysteresis generates qualitatively similar patterns: one-size-fits-all monetary policy and scarring mechanisms produce larger output losses under monetary union than under flexible exchange rates. By jointly estimating dynamic and heterogeneous treatment effects, the analysis highlights the importance of country characteristics in assessing the long-run consequences of monetary union.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Gabriel, Ricardo Duque and Pessoa, Ana Sofia (2024) The Euro and Economic Growth: A Synthetic Control Approach | 1.000 | 6 | 3 | 100% |
| 2 | Callaway, Brantly and Sant'Anna, Pedro H.C (2021) Difference-in-Differences with Multiple Time Periods | 0.644 | 2 | 2 | 100% |
| 3 | Sun, Liyang and Abraham, Sarah (2021) Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous Treatment Effects | 0.644 | 2 | 2 | 100% |
| 4 | Blanchard, Olivier J. and Summers, Lawrence H (1986) Hysteresis and the European Unemployment Problem | 0.585 | 3 | 1 | 100% |
| 5 | Gal\'i, Jordi (2015) Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework | 0.585 | 3 | 1 | 100% |
| 6 | Smets, Frank and Wouters, Rafael (2007) Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach | 0.585 | 3 | 1 | 100% |
| 7 | Cerra, Valerie and Saxena, Sweta Chaman (2008) Growth Dynamics: The Myth of Economic Recovery | 0.511 | 2 | 1 | 100% |
| 8 | Clarida, Richard and Gal\'i, Jordi and Gertler, Mark (2000) Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory | 0.511 | 2 | 1 | 100% |
| 9 | Gal\'i, Jordi and Monacelli, Tommaso (2005) Monetary Policy and Exchange Rate Volatility in a Small Open Economy | 0.511 | 2 | 1 | 100% |
| 10 | Kattenberg, Mark A.C. and Scheer, Bas J. and Thiel, Jurre H (2023) Causal forests with fixed effects for treatment effect heterogeneity in difference-in-differences | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 36 scored citations.