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Exports and domestic demand pressure: a dynamic panel data model for the euro area countries

António Rua, Paulo Esteves (), Karsten Staehr () and Elena Bobeica ()

No 1777, Working Paper Series from European Central Bank

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. JEL Classification: C22, C50, F10

Keywords: asymmetry; domestic demand pressure; exports (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-eec and nep-int
Note: 2382002
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Related works:
Journal Article: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2016) Downloads
Journal Article: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2016) Downloads
Working Paper: Exports and domestic demand pressure: a dynamic panel data model for the euro area countries (2015) Downloads
Working Paper: Exports and Domestic Demand Pressure: a Dynamic Panel Data Model for the Euro Area Countries (2014) Downloads
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