Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25308
Authors: 
Herwartz, Helmut
Weber, Henning
Year of Publication: 
2008
Series/Report no.: 
SFB 649 discussion paper 2008,065
Abstract: 
Microfoundations of the euro's effect on euro area trade hinge on the timing, the speed and the size of adjustment in trade costs. We estimate timing, speed and size of adjustment in trade costs for sectoral trade data. Our approach allows for sector specific impacts of trade costs on sectoral trade while controlling for unobserved but time-variant variables at the sector level. We find that, due to falling trade costs, trade within the euro area increases between the years 2000 and 2003 by 10 to 20 percent compared with trade between European countries that are not members of the euro area. Adjustment of individual sectors is extremely fast whereas aggregate adjustment spreads out because different sectors adjust at distinct times.
Subjects: 
Euro trade effect
gravity model
smooth transition
Kalman filter
JEL: 
C31
C33
F13
F15
F33
F42
Document Type: 
Working Paper

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