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Readdressing the trade effect of the Euro: Allowing for currency misalignment

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

Abstract

We know that euro-area member countries 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 trade cost channel and trade effects deriving from 'implicit currency misalignment'. Econometric estimation reveals that the currency misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country specific estimates of the euro effect on trade based on misalignment. This reveals asymmetric trade effects and heterogeneous outlooks across countries for the costs and benefits from adopting the euro. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 10-023.

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Date of creation: 2010
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Handle: RePEc:zbw:zewdip:10023

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Keywords: Euro; gravity model; exchange rates; purchasing power parity; trade imbalances;

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Cited by:
  1. Zeddies, Götz, 2011. "Der Euro als Triebfeder des deutschen Exports?," Center for European, Governance and Economic Development Research Discussion Papers 130, University of Goettingen, Department of Economics.
  2. repec:got:cegedp:130 is not listed on IDEAS

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