Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us?

Styliani Christodoulopoulou and Olegs Tkacevs
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Styliani Christodoulopoulou: European Central Bank

No 2014/06, Working Papers from Latvijas Banka

Abstract: This study is devoted to examing marginal effects of traditional determinants of exports and imports with a focus on the role of price competitiveness in restoring external balances. It is a first attempt to compare marginal effects of various harmonised competitiveness indicators (HCIs) on both exports and imports of both goods and services across individual euro area countries. We find evidence that the HCIs based on broader cost and price measures have a larger marginal effect (with some exceptions) on exports of goods. Exports of services are sensitive to the HCIs in large euro area countries and Slovakia, where exports of services are also found to be more sensitive to competitiveness indicators based on broader price measures. Imports of goods and imports of services are quite insensitive to the changes in relative prices. Finally, in some cases the measures of the goodness of fit indicate that a large unexplained residual part is present, implying that other non-price related factors might play an important role in driving foreign trade.

Keywords: real exchange rate; exports; imports; price competitiveness; euro area (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2014-12-01
New Economics Papers: this item is included in nep-eec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Related works:
Working Paper: Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ltv:wpaper:201406

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