Who did it? A European Detective Story Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool

During the past thirty years, euro area countries have undergone significant changes
and experienced diverse shocks. We aim to investigate which variables have
consistently supported growth in this tumultuous period. The paper unfolds in three
parts. First, we assemble a set of 35 real, financial, monetary and institutional variables
for all euro area countries covering the period between 1990Q1 and 2016Q4. Second,
using the Weighted-Average Least Squares (WALS) method, as well as other
techniques, we gather clues about which variables to select. Third, we quantify the
impact of various determinants of growth in the short and long runs. Our main finding is
the positive and robust role of institutional reforms on long-term growth for all countries
in the sample. An improvement in competitiveness matters for growth in the overall euro
area in the long run as well as a decline in sovereign and systemic stress. The debt over
GDP negatively influences growth for the periphery, but only in the short run. Property
and equity prices have a significant impact only in the short run, whereas the loans to
NFCs positively affect the core euro area. An increase in global GDP also supports
growth.