International Competitiveness of the Mediterranean Quartet:A Heterogeneous-Product Approach
AbstractThe real effective exchange rate (REER) is the most commonly used measure for assessing international competitiveness. We develop a methodology to estimate the REER that incorporates two distinctive elements that are not considered in the current literature and apply it to the Mediterranean Quartet (MQ) of Greece, Italy, Portugal, and Spain, whose common pattern of real appreciation has created concern in policy and academic circles. The two elements that we add to the existing literature are (i) product heterogeneity when identifying each country's international competitors and their weights and (ii) a comprehensive treatment of services exports. Our refined measure suggests a modest reduction in the observed REER gap between the MQ countries and the other euro area countries. In particular, considering product heterogeneity and services exports implies a lower real appreciation from 1998 to 2006 on the order of 2-3 percent for all MQ countries. These are difference-in-difference estimates relative to the results obtained for the rest of the euro area countries using the same methodology.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 08/240.
Date of creation: 01 Oct 2008
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Other versions of this item:
- Herman Z Bennett & Ziga Zarnic, 2009. "International Competitiveness of the Mediterranean Quartet: A Heterogeneous-Product Approach," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 919-957, November.
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CBA-2008-10-28 (Central Banking)
- NEP-CSE-2008-10-28 (Economics of Strategic Management)
- NEP-EEC-2008-10-28 (European Economics)
- NEP-OPM-2008-10-28 (Open Economy Macroeconomic)
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