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Title:Putting currency misalignment into gravity: The currency union effect reconsidered PDF Logo
Authors:Hogrefe, Jan
Jung, Benjamin
Kohler, Wilhelm K.
Issue Date:2012
Series/Report no.:University of Tübingen working papers in economics and finance 32
Abstract:Member countries of a currency union like the euro area 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 microeconomic trade effect and macroeconomic trade effects deriving from bilateral misalignment within currency unions. Econometric estimation reveals that for the euro area the misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country-specific estimates of the misalignment-induced effect on trade which demonstrate heterogeneous outlooks across countries for the costs and benefits from adopting the euro.
Subjects:Euro
gravity model
exchange rates
trade imbalances
JEL:F12
F13
F15
Persistent Identifier of the first edition:urn:nbn:de:bsz:21-opus-61260
Document Type:Working Paper
Appears in Collections:University of Tübingen Working Papers in Economics and Finance

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