Laura Lebastard attended GSIE seminar Monday December 5. She presented “Has the Euro Protected its Members during the “Great Trade Collapse”?”
This paper measures the effect of the euro during the great trade collapse that has followed the 2008 financial crisis. The literature has shown that currency unions increase trade, the results being empirically significant for the Eurozone. On the other side, trade among the countries of the Eurozone has decreased during the crisis. Therefore it is important to determine whether the euro has amortized the great trade collapse or if it has worsened it, as it is a good indicator to know if the increase in trade due to a single currency is only superficial, or it is on the contrary very strong and will last over time, despite the crisis. To address this question, we use a diff-in-diff methodology, comparing the countries of the Eurozone with the other countries of the European Union, plus Switzerland and Norway. We find that indeed, the euro had a positive effect during the crisis. Not only has the trade in the Eurozone better answered during the collapse, but the trade “recovery” (the rebound) was also stronger.