Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154210
Authors: 
Bobeica, Elena
Soares Esteves, Paulo
Rua, António
Staehr, Karsten
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1777
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 significant substitution effect 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 efforts to serve markets abroad, but, conversely, during times of boom, exports are not negatively affected 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.
Subjects: 
asymmetry
domestic demand pressure
exports
JEL: 
C22
C50
F10
ISBN: 
978-92-899-1590-8
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.