IDEAS home Printed from https://ideas.repec.org/p/ltv/wpaper/201406.html
   My bibliography  Save this paper

Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us?

Author

Listed:
  • Styliani Christodoulopoulou

    (European Central Bank)

  • Olegs Tkacevs

    (Bank of Latvia)

Abstract

This study is devoted to examing marginal effects of traditional determinants of exports and imports with a focus on the role of price competitiveness in restoring external balances. It is a first attempt to compare marginal effects of various harmonised competitiveness indicators (HCIs) on both exports and imports of both goods and services across individual euro area countries. We find evidence that the HCIs based on broader cost and price measures have a larger marginal effect (with some exceptions) on exports of goods. Exports of services are sensitive to the HCIs in large euro area countries and Slovakia, where exports of services are also found to be more sensitive to competitiveness indicators based on broader price measures. Imports of goods and imports of services are quite insensitive to the changes in relative prices. Finally, in some cases the measures of the goodness of fit indicate that a large unexplained residual part is present, implying that other non-price related factors might play an important role in driving foreign trade.

Suggested Citation

  • Styliani Christodoulopoulou & Olegs Tkacevs, 2014. "Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us?," Working Papers 2014/06, Latvijas Banka.
  • Handle: RePEc:ltv:wpaper:201406
    as

    Download full text from publisher

    File URL: https://www.bank.lv/images/stories/pielikumi/publikacijas/petijumi/wp_6_2014_en.pdf
    Download Restriction: no

    File URL: https://www.macroeconomics.lv/sites/default/files/wp_6_2014.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Berman, Nicolas & Berthou, Antoine & Héricourt, Jérôme, 2015. "Export dynamics and sales at home," Journal of International Economics, Elsevier, vol. 96(2), pages 298-310.
    2. Ariu, Andrea, 2016. "Crisis-proof services: Why trade in services did not suffer during the 2008–2009 collapse," Journal of International Economics, Elsevier, vol. 98(C), pages 138-149.
    3. Benkovskis, Konstantins & Wörz, Julia, 2018. "What drives the market share changes? Price versus non-price factors," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 9-29.
    4. Filippo Di Mauro & Katrin Forster, "undated". "Globalisation and the competitiveness of the Euro area," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    5. Anderton, Robert & Tewolde, Tadios, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series 1370, European Central Bank.
    6. Hubrich, Kirstin & Karlsson, Tohmas, 2010. "Trade consistency in the context of the Eurosystem projection exercises – an overview," Occasional Paper Series 108, European Central Bank.
    7. Stirböck, Claudia, 2006. "How strong is the impact of exports and other demand components on German import demand? Evidence from euro-area and non-euro-area imports," Discussion Paper Series 1: Economic Studies 2006,39, Deutsche Bundesbank.
    8. Schmitz, Martin & De Clercq, Maarten & Fidora, Michael & Lauro, Bernadette & Pinheiro, Cristina, 2012. "Revisiting the effective exchange rates of the euro," Occasional Paper Series 134, European Central Bank.
    9. Ca' Zorzi, Michele & Schnatz, Bernd, 2007. "Explaining and forecasting euro area exports: which competitiveness indicator performs best?," Working Paper Series 833, European Central Bank.
    10. Leland Crane & Meredith A. Crowley & Saad Quayyum, 2007. "Understanding the evolution of trade deficits: trade elasticities of industrialized countries," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 31(Q IV), pages 2-17.
    11. repec:hhs:bofitp:2013_018 is not listed on IDEAS
    12. Paulo Esteves & António Rua, 2015. "Is there a role for domestic demand pressure on export performance?," Empirical Economics, Springer, vol. 49(4), pages 1173-1189, December.
    13. Ingo Borchert & Aaditya Mattoo, 2009. "The crisis-resilience of services trade," The Service Industries Journal, Taylor & Francis Journals, vol. 30(13), pages 2115-2136, August.
    14. Matthieu Bussière & Giovanni Callegari & Fabio Ghironi & Giulia Sestieri & Norihiko Yamano, 2013. "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 118-151, July.
    15. Céline Allard, 2009. "Competitiveness in Central-Europe; What Has Happened Since EU Accession?," IMF Working Papers 2009/121, International Monetary Fund.
    16. Jarkko Turunen & Richard T. Harmsen & Tamim Bayoumi, 2011. "Euro Area Export Performance and Competitiveness," IMF Working Papers 2011/140, International Monetary Fund.
    17. THORBECKE, Willem & KATO Atsuyuki, 2012. "The Effect of Exchange Rate Changes on Germany's Exports," Discussion papers 12081, Research Institute of Economy, Trade and Industry (RIETI).
    18. Pogany, Peter, 1998. "P. Pogany - The Global Income Elasticity of Trade: Theory and Potential Applications," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(3), pages 401-428.
    19. Filippo Di Mauro & Katrin Forster, "undated". "Globalisation and the competitiveness of the Euro area," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    20. Barrell, Ray & Dées, Stéphane, 2005. "World trade and global integration in production processes: a re-assessment of import demand equations," Working Paper Series 503, European Central Bank.
    21. Robert Anderton & Tadios Tewolde, 2011. "The Global Financial Crisis: Understanding the Global Trade Downturn and Recovery," The World Economy, Wiley Blackwell, vol. 34, pages 741-763, May.
    22. Schmitz, Martin & De Clercq, Maarten & Fidora, Michael & Lauro, Bernadette & Pinheiro, Cristina, 2012. "Revisiting the effective exchange rates of the euro," Occasional Paper Series 134, European Central Bank.
    23. Hubrich, Kirstin & Karlsson, Tohmas, 2010. "Trade consistency in the context of the Eurosystem projection exercises - an overview," Occasional Paper Series 108, European Central Bank.
    24. Dieppe, Alistair & Warmedinger, Thomas, 2007. "Modelling intra- and extra-area trade substitution and exchange rate pass-through in the euro area," Working Paper Series 760, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Auboin, Marc & Borino, Floriana, 2017. "The falling elasticity of global trade to economic activity: Testing the demand channel," WTO Staff Working Papers ERSD-2017-09, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Claire Giordano & Francesco Zollino, 2016. "Shedding Light on Price- and Non-price-competitiveness Determinants of Foreign Trade in the Four Largest Euro-area Countries," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 604-634, August.
    3. Marczak, Martyna & Beissinger, Thomas, 2018. "Competitiveness at the country-sector level: New measures based on global value chains," Hohenheim Discussion Papers in Business, Economics and Social Sciences 12-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    4. Felettigh, Alberto & Giordano, Claire & Oddo, Giacomo & Romano, Valentina, 2016. "New indicators to assess price-competitiveness developments in the four largest euro-area countries and in their main trading partners," Journal of Economic and Social Measurement, IOS Press, issue 3, pages 203-235.
    5. Aaron G Grech & Noel Rapa, "undated". "Trends in Malta’s current account and their underlying causes," CBM Policy Papers PP/03/2016, Central Bank of Malta.
    6. Elena Bobeica & Paulo Esteves & António Rua & Karsten Staehr, 2016. "Exports and domestic demand pressure: a dynamic panel data model for the euro area countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 107-125, February.
    7. Michael Fidora & Claire Giordano & Martin Schmitz, 2021. "Real Exchange Rate Misalignments in the Euro Area," Open Economies Review, Springer, vol. 32(1), pages 71-107, February.
    8. Osbat, Chiara & Zollino, Francesco & Aiello, Giovanni & Bluhm, Benjamin & Buelens, Christian & Cavallini, Flavia & Joseph, Andreas & Leonte, Alexandru & Lommatzsch, Kirsten & Momchilov, Georgi & Giord, 2015. "Compendium on the diagnostic toolkit for competitiveness," Occasional Paper Series 163, European Central Bank.
    9. Tkačevs, Olegs & Christodoulopoulou, Styliani & Bobeica, Elena, 2016. "The role of price and cost competitiveness for intra- and extra-euro area trade of euro area countries," Working Paper Series 1941, European Central Bank.
    10. Esteves, Paulo Soares & Prades, Elvira, 2018. "Does export concentration matter in economic adjustment programs? Evidence from the euro-area," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 225-241.
    11. Ansgar Belke & Anne Oeking & Ralph Setzer, 2015. "Exports and Capacity Constraints: Evidence for Several Euro Area Countries," CESifo Working Paper Series 5455, CESifo.
    12. Alvar Kangur, 2018. "Competitiveness and Wage Bargaining Reform in Italy," IMF Working Papers 2018/061, International Monetary Fund.
    13. Giordano, Claire & Lopez-Garcia, Paloma, 2019. "Firm heterogeneity and trade in EU countries: a cross-country analysis," Occasional Paper Series 225, European Central Bank.
    14. Marc Auboin & Floriana Borino, 2018. "The Falling Elasticity of Global Trade to Economic Activity: Testing the Demand Channel," CESifo Working Paper Series 7228, CESifo.
    15. Enno Schröder, 2015. "Eurozone Imbalances: Measuring the Contribution of Expenditure Switching and Expenditure Volumes 1990-2013," Working Papers 1508, New School for Social Research, Department of Economics, revised Sep 2015.
    16. Lommatzsch, Kirsten & Silgoner, Maria A. & Ramskogler, Paul, 2016. "Trade in value added: Do we need new measures of competitiveness?," Discussion Papers 52/2016, Deutsche Bundesbank.
    17. repec:ecb:ecbops:2012163 is not listed on IDEAS
    18. Beata K. Bierut & Kamila Kuziemska-Pawlak, 2017. "Competitiveness and Export Performance of CEE Countries," Eastern European Economics, Taylor & Francis Journals, vol. 55(6), pages 522-542, November.
    19. Claire Giordano, 2018. "Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017," Questioni di Economia e Finanza (Occasional Papers) 444, Bank of Italy, Economic Research and International Relations Area.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Styliani Christodoulopoulou & Oļegs Tkačevs, 2016. "Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(3), pages 487-531, August.
    2. Paulo Esteves & António Rua, 2015. "Is there a role for domestic demand pressure on export performance?," Empirical Economics, Springer, vol. 49(4), pages 1173-1189, December.
    3. Elena Bobeica & Paulo Esteves & António Rua & Karsten Staehr, 2016. "Exports and domestic demand pressure: a dynamic panel data model for the euro area countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 107-125, February.
    4. Christoph Fischer & Oliver Hossfeld & Karin Radeck, 2018. "On the Suitability of Alternative Competitiveness Indicators for Explaining Real Exports of Advanced Economies," Open Economies Review, Springer, vol. 29(1), pages 119-139, February.
    5. Elena Bobeica & Olegs Tkacevs & Styliani Christodoulopoulou, 2016. "The role of price and cost competitiveness for intra- and extra-euro area trade of euro area countries," Working Papers 2016/04, Latvijas Banka.
    6. Matteo Bugamelli & Silvia Fabiani & Stefano Federico & Alberto Felettigh & Claire Giordano & Andrea Linarello, 2018. "Back on Track? A Macro–Micro Narrative of Italian Exports," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(1), pages 1-31, March.
    7. Mariarosaria Comunale & Jeroen Hessel, 2014. "Current account imbalances in the Euro area: Competitiveness or financial cycle?," DNB Working Papers 443, Netherlands Central Bank, Research Department.
    8. Jules Leichter & Cristina Mocci & Stefania Pozzuoli, "undated". "Measuring External Competitiveness:An Overview," Working Papers 2, Department of the Treasury, Ministry of the Economy and of Finance.
    9. J. Bardaji & J.-C. Bricongne & B. Campagne & G. Gaulier, 2015. "Compared performances of French companies on the domestic and foreign markets," Documents de Travail de l'Insee - INSEE Working Papers g2015-16, Institut National de la Statistique et des Etudes Economiques.
    10. Claire Giordano & Francesco Zollino, 2016. "Shedding Light on Price- and Non-price-competitiveness Determinants of Foreign Trade in the Four Largest Euro-area Countries," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 604-634, August.
    11. Rudolfs Bems & Robert C. Johnson, 2017. "Demand for Value Added and Value-Added Exchange Rates," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 45-90, October.
    12. Laborda, Juan & Salas, Vicente & Suárez, Cristina, 2020. "Manufacturing firms’ export activity: Business and financial cycles overlaps!," International Economics, Elsevier, vol. 162(C), pages 1-14.
    13. Lucian Claudiu ANGHEL & Laurentiu-Mihai TREAPAT, 2015. "Main Economic Policies in order to Manage an Optimum Accession of Romania to the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 3(1), pages 151-169, March.
    14. Aiello, Francesco & Bonanno, Graziella & Via, Alessia, 2014. "Do export price elasticities support tensions in currency markets? Evidence from China and six OECD countries," MPRA Paper 56727, University Library of Munich, Germany.
    15. Duncan van Limbergen & Robert Vermeulen, 2020. "The importance of value chains for euro area trade: a time series perspective," DNB Working Papers 672, Netherlands Central Bank, Research Department.
    16. Benkovskis, Konstantins & Wörz, Julia, 2018. "What drives the market share changes? Price versus non-price factors," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 9-29.
    17. Oriol Carreras & Iana Liadze & Simon Kirby & Rebecca Piggott, 2016. "Quantifying Fiscal Multipliers," National Institute of Economic and Social Research (NIESR) Discussion Papers 469, National Institute of Economic and Social Research.
    18. Trabandt, Mathias & Slavík, Michal & Checherita-Westphal, Cristina & Maurer, Henri & Catz, Julia & Warmedinger, Thomas & Afonso, António & Leiner-Killinger, Nadine & van Riet, Ad & Valenta, Vilém & Ni, 2010. "Euro area fiscal policies and the crisis," Occasional Paper Series 109, European Central Bank.
    19. Kuzmina, Olga & Kuznetsova, Olga, 2018. "Operational and financial hedging: Evidence from export and import behavior," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 109-121.
    20. Oliver Entrop & Matthias F. Merkel, 2020. "Managers’ research education, the use of FX derivatives and corporate speculation," Review of Managerial Science, Springer, vol. 14(4), pages 869-901, August.

    More about this item

    Keywords

    real exchange rate; exports; imports; price competitiveness; euro area;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ltv:wpaper:201406. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Konstantins Benkovskis). General contact details of provider: https://edirc.repec.org/data/bolgvlv.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.