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The impact of an exchange rate realignment on the trade balance: Euro vs. national currency - Some preliminary results with a/simmetrie model of the Italian economy

Author

Listed:
  • Alberto Bagnai

    () (Department of Economics, Gabriele d'Annunzio University)

  • Christian Alexander Mongeau Ospina

    (a/simmetrie, Italian Association for the Study of Economic Asymmetries)

Abstract

It is frequently claimed that the current EUR/USD exchange rate is too high and that a depreciation of the EUR against the USD would contribute to relieve the Eurozone economy from the current state of persistent crisis. Evidence provided by the a/simmetrie annual econometric model suggests that this claim is unsupported by the data, at least as far as the Italian economy is concerned. In fact, the size and sign of the trade elasticities show that the increases in net exports towards non-Eurozone countries, brought about by the depreciation of the euro, would be offset by an increase in net imports towards Eurozone countries, brought about by the increase in Italian domestic demand. To put it simply, in case of a depreciation of the EUR, the Italian economy would not only suffer a higher costs of energy (because of the depreciation vis-à-vis OPEC countries), but also spend in Germany much of the money it earned in the US, Japan, and the emerging countries, with a net effect likely to be almost zero or negative in the first three to four years.

Suggested Citation

  • Alberto Bagnai & Christian Alexander Mongeau Ospina, 2014. "The impact of an exchange rate realignment on the trade balance: Euro vs. national currency - Some preliminary results with a/simmetrie model of the Italian economy," a/ Policy Briefs Series 1401, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  • Handle: RePEc:ais:pbrief:1401
    as

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    References listed on IDEAS

    as
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Un parere...
      by Alberto Bagnai in Goofynomics on 2014-09-02 01:25:00
    2. The impact of an exchange rate realignment on the trade balance: Euro vs. national currency – Some preliminary results with a/simmetrie model of the Italian economy
      by Alessandro Cerboni in Knowledge Team on 2014-11-08 01:01:24

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    Cited by:

    1. A. Lanzavecchia & E. Pavarani, 2015. "Democracy or Euro: who will surrender?," Economics Department Working Papers 2015-EF02, Department of Economics, Parma University (Italy).

    More about this item

    Keywords

    Simulation methods; Trade forecasting and simulations; Foreign exchange; Current account adjustment; Comparative analysis of economic systems;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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