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The North-South Divide, the Euro and the World

Author

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  • Konstantinos Chisiridis

    () (Department of Economics, University of Macedonia, Greece)

  • Kostas Mouratidis

    () (Department of Economics, University of Sheffield, UK)

  • Theodore Panagiotidis

    () (Department of Economics, University of Macedonia, Greece)

Abstract

The European north-south divide has been an issue of a long-standing debate. We employ a Global VAR model for 28 developed and developing countries to examine the interaction between the global trade imbalances and their impact within the euro-area framework. The aim is to assess the propagation mechanisms of real shocks, focusing on the interconnections among the north euro area and the south euro area. We incorporate theory-based long-run restrictions and examine the effects of (i) non-export real output shocks, (ii) expansionary shocks and (iii) real exchange rate shocks. The results provide support for symmetric adjustment in the euro area; an expansionary policy of the north euro area and increased competitiveness in the south euro area can alleviate trade imbalances of the debtor euro area economies. From the south euro area perspective, internal devaluation is the most beneficial policy. North euro area and U.S. origin shocks to domestic output exert a dominant influence in the rest of the Europe and Asia while the strong linkage between trade flows within the euro area is confirmed.

Suggested Citation

  • Konstantinos Chisiridis & Kostas Mouratidis & Theodore Panagiotidis, 2018. "The North-South Divide, the Euro and the World," Working Papers 2018015, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2018015
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    References listed on IDEAS

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    More about this item

    Keywords

    North-South Euro Area Trade Imbalances; Global Trade Imbalances; International Linkages; Global VAR; Spillover Effects;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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