Has the Euro increased international price elasticities?

Oliver Holtemöller and Goetz Zeddies

Empirica, 2013, vol. 40, issue 1, 197-214

Abstract: The introduction of the Euro has been accompanied by the hope that international competition between EMU member states would increase due to higher price transparency. This paper contributes to the literature by analyzing price elasticities in international trade flows between Germany and France and between Germany and the United Kingdom before and after the introduction of the Euro. Using disaggregated Eurostat trade statistics, we adopt a heterogeneous dynamic panel framework for the estimation of price elasticities. We suggest a Kalman-filter approach to control for unobservable quality changes which otherwise would bias estimates of price elasticities. We divide the complete sample, which ranges from 1995 to 2008, into two sub-samples and show that price elasticities in trade between EMU members did not change substantially after the introduction of the Euro. Hence, we do not find evidence for an increase in international price competition resulting from EMU. Copyright Springer Science+Business Media, LLC. 2013

Keywords: European integration; Introduction of the Euro; Import price elasticity; Panel data; Kalman-filter; Structural vector autoregression; F14; F15; F41; C32; C33 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Working Paper: Has the Euro Increased International Price Elasticities? (2010)
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DOI: 10.1007/s10663-011-9182-3

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