Our Spring issue will be live next week! Read all about the Arab Spring, the French election campaign, and perhaps a little April Fool’s humour…
In the meantime, check out an oldie but goodie–The Euro, by Joao Santos Silva and Silvana Tenreyro:
“In an attempt to provide more reliable evidence, our research estimates the effect of the euro on trade using what is known as a ‘differences-in-differences” approach. Loosely speaking, this technique is based on the comparison between trade flows for the periods before and after the euro was introduced for two groups of countries: those that joined the euro during the observation period (the ‘treatment” group) and a comparable group of trading partners that did not join the euro (the ‘control’ group). The effect of the euro can then be obtained as the difference in the changes from the pre- to the post-euro period for the two groups.
The use of the differences-in-differences approach is now standard in labour economics and health economics, but has not been used in this context. It is particularly appealing for this purpose because it allows estimation of the euro’s effect while taking account of systemic differences between the countries that joined the euro and comparable countries that did not join, such as the UK and Denmark.
In particular, the method takes account of the fact that the economies of the eurozone countries were already deeply integrated before the currency was introduced. Micco and colleagues also accounted for this in some of their estimates but, as indicated, their work suffered from other limitations.”
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