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Explaining and forecasting euro area exports: which competitiveness indicator performs best?

  • Ca' Zorzi, Michele
  • Schnatz, Bernd

From a conceptual point of view there is little consensus of what should be the “ideal indicator” of international cost and price competitiveness as each of the standard measures typically employed has its own merits and drawbacks. This calls for addressing the question from an empirical angle, searching for the indicator that best explains and helps forecast export developments. This paper constitutes a first attempt to systematically compare the properties of the alternative cost and price competitiveness measures of the euro area. Although they diverge sometimes, we find little evidence that there is one indicator consistently outperforming the other in terms of explaining and forecasting euro area exports. This suggests that the measures based on consumer and producer prices, which offer some advantages in terms of quality and timeliness, are good approximations of euro area price and cost competitiveness. JEL Classification: F17, F31, F41

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Paper provided by European Central Bank in its series Working Paper Series with number 0833.

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Date of creation: Nov 2007
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Handle: RePEc:ecb:ecbwps:20070833
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  1. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
  2. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  3. Charles Engel, 1999. "Accounting for U.S. Real Exchange Rate Changes," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 507-538, June.
  4. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  5. Filippo di Mauro & Robert Anderton & Ekkehard Ernst & Laurent Maurin & Sonia Pokutova & Wim Melyn & Axel Jochem & N. M. Pakinezou & Javier Torres & Remy Lecat & Mark Cassidy & Roberto Tedeschi & Erik , 2005. "Competitiveness and the export performance of the euro area," Occasional Paper Series 30, European Central Bank.
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