The aim of this paper is to improve our understanding of the key determinants of intra- and extra-euro area imports. Using a simultaneous equation estimation framework, and pooling the data across nine euro area countries as an approximation of the euro area, we estimate intra- and extra-euro area import demand functions and impose various restrictions within and across equations. We find that there are significant substitution effects btween intra- and extra-euro area imports due to changes in their relative prices, while exchange rate volatility decreases trade vis-à-vis regions characterised by high volatility and leads to substitution of trade away from higher-volatility regions towards lower-volatility regions.
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Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F15 - International Economics - - Trade - - - Economic Integration
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