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Putting currency misalignment into gravity: The currency union effect reconsidered

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  • Hogrefe, Jan
  • Jung, Benjamin
  • Kohler, Wilhelm K.

Abstract

Member countries of a currency union like the euro area have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional microeconomic trade effect and macroeconomic trade effects deriving from bilateral misalignment within currency unions. Econometric estimation reveals that for the euro area the misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country-specific estimates of the misalignment-induced effect on trade which demonstrate heterogeneous outlooks across countries for the costs and benefits from adopting the euro.

Suggested Citation

  • Hogrefe, Jan & Jung, Benjamin & Kohler, Wilhelm K., 2012. "Putting currency misalignment into gravity: The currency union effect reconsidered," University of Tübingen Working Papers in Business and Economics 32, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:32
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    References listed on IDEAS

    as
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    Cited by:

    1. Zeddies, Götz, 2011. "Der Euro als Triebfeder des deutschen Exports?," University of Göttingen Working Papers in Economics 130, University of Goettingen, Department of Economics.
    2. Kohler, Wilhelm, 2012. "Resolving sovereign debt crises: Opening or closing the tap?," University of Tübingen Working Papers in Business and Economics 39, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    3. Peter Wierts & Henk Van Kerkhoff & Jakob De Haan, 2014. "Composition of Exports and Export Performance of Eurozone Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 928-941, July.
    4. Projektgruppe Gemeinschaftsdiagnose, 2011. "Joint Economic Forecast Spring 2011: Upswing continues - European Debt Crisis still Unresolved," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(08), pages 03-63, April.
    5. Etzel, Daniel & Hauptmann, Andreas & Schmerer, Hans-Jörg, 2013. "Dissecting the German export miracle: Plant-level evidence," Economic Systems, Elsevier, vol. 37(3), pages 387-403.
    6. Fritz Breuss, 2013. "Die Größe der Kleinen in der EU," WIFO Working Papers 452, WIFO.
    7. Fritz Breuss, 2012. "EU-Mitgliedschaft Österreichs. Eine Evaluierung in Zeiten der Krise," WIFO Studies, WIFO, number 45578, February.
    8. repec:got:cegedp:130 is not listed on IDEAS

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    More about this item

    Keywords

    Euro; gravity model; exchange rates; trade imbalances;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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