Examining the Effects of the European Monetary Union Using Propensity Score Matching

We examine the treatment effects of joining the European monetary union on macroeconomic outcomes in the member countries. Specifically, we apply propensity score analysis to mitigate the self-selection bias associated with the non-random nature of joining the union. The findings suggest joining the union leads to decline in inflation, inflation volatility, real GDP growth and bond yield for the post-EMU formation period. The treatment effects on bond yield and debt show divergent pattern in core and periphery countries after the financial crisis. The bond market in the southern EMU countries benefited disproportionately in the pre-crisis period in terms of lower bond yields.