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Exports and Domestic Demand Pressure: a Dynamic Panel Data Model for the Euro Area Countries

Author

Listed:
  • Elena Bobeica
  • Karsten Staehr
  • António Rua
  • Paulo Esteves

Abstract

The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results suggest that there is a statistically signi?cant substitution e¤ect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market translates into increased e¤orts to serve markets abroad, but, conversely, during times of boom, exports are not negatively a¤ected by increasing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could represent a new adjustment channel to strong negative domestic shocks.The results have important policy implications, as this substitution effect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices.

Suggested Citation

  • Elena Bobeica & Karsten Staehr & António Rua & Paulo Esteves, 2014. "Exports and Domestic Demand Pressure: a Dynamic Panel Data Model for the Euro Area Countries," Working Papers w201415, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w201415
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. repec:eee:jpolmo:v:40:y:2018:i:2:p:225-241 is not listed on IDEAS
    4. repec:mje:mjejnl:v:12:y:2017:i:2:p:141-150 is not listed on IDEAS
    5. Soares Esteves, Paulo & Prades, Elvira, 2016. "On domestic demand and export performance in the euro area countries: does export concentration matter?," Working Paper Series 1909, European Central Bank.
    6. repec:mje:mjejnl:v:13:y:2017:i:2:p:141-150 is not listed on IDEAS
    7. repec:bis:bisifc:45-15 is not listed on IDEAS

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F10 - International Economics - - Trade - - - General

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