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The Euro’s Trade Effect under Cross-Sectional Heterogeneity and Stochastic Resistance

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Author Info

  • Helmut Herwartz
  • Henning Weber

Abstract

This paper investigates if the euro's effect on euro-area trade differs across trade sectors and across country pairs, and to what degree heterogeneity matters for estimating the aggregate euro effect. Time-varying latent variables, which are specific to each sector in each country pair, control for omitted trade costs and mismeasured resistance terms. Parameter heterogeneity and time-varying latent variables are both strongly supported by the data. Due to decreasing trade costs, aggregate exports within the euro area increase between 2000 and 2002 by 15 to 25 percent compared with aggregate exports between European economies which are not members of the euro area. Adjustment within individual sectors is rapid whereas aggregate adjustment is more spread out and gradual since different sectors adjust at distinct times

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File URL: https://www.ifw-members.ifw-kiel.de/publications/the-euro2019s-trade-effect-under-cross-sectional-heterogeneity-and-stochastic-resistance-1/kap-1631.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1631.

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Length: 33 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:kie:kieliw:1631

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Keywords: Euro's trade effect; parameter heterogeneity; smooth-transition model;

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  1. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
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Cited by:
  1. Herwartz, Helmut & Weber, Henning, 2013. "The role of cross-sectional heterogeneity for magnitude and timing of the euro's trade effect," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 48-74.

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