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Is There a Euro Effect on Trade? An Application of End-of-Sample Structural Break Tests for Panel Data

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Author Info
Tommaso Mancini-Griffoli
Laurent L. Pauwels () (IUHEI, The Graduate Institute of International Studies, Geneva)

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Abstract

Whether trade has increased due to the Euro is a question at the heart of lively policy debates and academic research. We revisit the question with a new, more powerful econometric test for end-of-sample breaks to formally identify the timing and duration of the structural break implied by the ÒRose effectÓ on the Euro AreaÕs trade. We find a significant break in 1999Q1 when using a traditional gravity equa- tion, corroborating the general consensus in the literature. However, we find that this break is short lived. Furthermore, we show that the break can be explained both by the marked decrease in real interest rates across the Euro Area and by deepening European institutional integration.

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Publisher Info
Paper provided by Economics Section, The Graduate Institute of International Studies in its series HEI Working Papers with number 04-2006.

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Length: 31
Date of creation: Apr 2006
Date of revision: Apr 2006
Handle: RePEc:gii:giihei:heiwp04-2006

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Related research
Keywords: Gravity equation; International Trade; Common Currency; Structural break tests in panel data; Euro Area;

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Baldwin, Richard & Di Nino, Virginia, 2006. "Euros and Zeros: The Common Currency Effect on Trade in New Goods," CEPR Discussion Papers 5973, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Tommaso Mancini Griffoli, 2006. "Explaining the Euro's Effect on Trade? Interest Rates in an Augmented Gravity Equation," HEI Working Papers 10-2006, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  3. Juan Piñeiro Chousa, & Artur Tamazian, & Davit N. Melikyan,, 2008. "MARKET RISK DYNAMICS AND COMPETITIVENESS AFTER THE EURO: Evidence from EMU Members," William Davidson Institute Working Papers Series wp916, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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