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Readdressing the trade effect of the Euro: Allowing for currency misalignment

Author

Listed:
  • Hogrefe, Jan
  • Jung, Benjamin
  • Kohler, Wilhelm K.

Abstract

We know that euro-area member countries have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional trade cost channel and trade effects deriving from 'implicit currency misalignment'. Econometric estimation reveals that the currency misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country specific estimates of the euro effect on trade based on misalignment. This reveals asymmetric trade effects and heterogeneous outlooks across countries for the costs and benefits from adopting the euro.

Suggested Citation

  • Hogrefe, Jan & Jung, Benjamin & Kohler, Wilhelm K., 2010. "Readdressing the trade effect of the Euro: Allowing for currency misalignment," ZEW Discussion Papers 10-023, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:10023
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    References listed on IDEAS

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    1. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
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    11. Gabriel Felbermayr & Wilhelm Kohler, 2014. "WTO Membership and the Extensive Margin of World Trade: New Evidence," World Scientific Book Chapters,in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 5, pages 149-192 World Scientific Publishing Co. Pte. Ltd..
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    Citations

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    Cited by:

    1. Projektgruppe Gemeinschaftsdiagnose, 2011. "Gemeinschaftsdiagnose Frühjahr 2011: Aufschwung setzt sich fort - Europäische Schuldenkrise noch ungelöst," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(08), pages 03-63, April.
    2. Etzel, Daniel & Hauptmann, Andreas & Schmerer, Hans-Jörg, 2013. "Dissecting the German export miracle: Plant-level evidence," Economic Systems, Elsevier, vol. 37(3), pages 387-403.
    3. Zeddies, Götz, 2011. "Der Euro als Triebfeder des deutschen Exports?," Center for European, Governance and Economic Development Research Discussion Papers 130, University of Goettingen, Department of Economics.
    4. Kohler, Wilhelm, 2012. "Resolving sovereign debt crises: Opening or closing the tap?," University of Tuebingen Working Papers in Economics and Finance 39, University of Tuebingen, Faculty of Economics and Social Sciences.
    5. Fritz Breuss, 2013. "The Leverage of the Small Ones in the EU," WIFO Working Papers 452, WIFO.
    6. repec:wfo:wstudy:45578 is not listed on IDEAS
    7. Peter Wierts & Henk Van Kerkhoff & Jakob De Haan, 2014. "Composition of Exports and Export Performance of Eurozone Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 928-941, July.
    8. repec:got:cegedp:130 is not listed on IDEAS

    More about this item

    Keywords

    Euro; gravity model; exchange rates; purchasing power parity; trade imbalances;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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