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Title:Readdressing the trade effect of the Euro: Allowing for currency misalignment PDF Logo
Authors:Hogrefe, Jan
Jung, Benjamin
Kohler, Wilhelm K.
Issue Date:2010
Series/Report no.:ZEW Discussion Papers 10-023
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.
Subjects:Euro
gravity model
exchange rates
purchasing power parity
trade imbalances
JEL:F12
F13
F15
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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