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The Effect of Exchange Rate Changes on Germany's Exports

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  • THORBECKE, Willem
  • KATO Atsuyuki

Abstract

Germany's nominal exchange rate has remained weaker because it is linked to weaker eurozone economies. Germany's real exchange rate also depreciated vis-�-vis eurozone countries after 2000 because German firms and workers controlled unit labor costs. This paper investigates how exchange rate changes affect German exports. Results from Johansen maximum likelihood and dynamic ordinary least squares (DOLS) estimation indicate that the export elasticity for the unit labor cost-deflated exchange rate equals 0.6. Results from panel DOLS estimation indicate that price elasticities are much higher for consumption goods exports than for capital goods exports and for exports to the eurozone than for exports outside of it. These results imply that Germany's internal devaluation after 2000 contributed to a surge in exports to Europe.

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File URL: http://www.rieti.go.jp/jp/publications/dp/12e081.pdf
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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12081.

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Length: 31 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:eti:dpaper:12081

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  1. International Monetary Fund, 2005. "France, Germany, Italy, and Spain: Explaining Differences in External Sector Performance Among Large Euro Area Countries," IMF Staff Country Reports 05/401, International Monetary Fund.
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