Putting currency misalignment into gravity: The currency union effect reconsidered
AbstractMember 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. --
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Bibliographic InfoPaper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 32.
Date of creation: 2012
Date of revision:
Euro; gravity model; exchange rates; trade imbalances;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-EEC-2012-05-22 (European Economics)
- NEP-INT-2012-05-22 (International Trade)
- NEP-MON-2012-05-22 (Monetary Economics)
- NEP-OPM-2012-05-22 (Open Economy Macroeconomic)
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