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Is There a Euro Effect on Trade? An Application of End-of-Sample Structural Break Tests for Panel Data

Tommaso Mancini-Griffoli and Laurent Pauwels ()

No 04-2006, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Whether trade has increased due to the Euro is a question at the heart of lively policy debates and academic research. We revisit the question with a new, more powerful econometric test for end-of-sample breaks to formally identify the timing and duration of the structural break implied by the ÒRose effectÓ on the Euro AreaÕs trade. We find a significant break in 1999Q1 when using a traditional gravity equa- tion, corroborating the general consensus in the literature. However, we find that this break is short lived. Furthermore, we show that the break can be explained both by the marked decrease in real interest rates across the Euro Area and by deepening European institutional integration.

Keywords: Gravity equation; International Trade; Common Currency; Structural break tests in panel data; Euro Area (search for similar items in EconPapers)
Pages: 31
Date: 2006-04, Revised 2006-04
New Economics Papers: this item is included in nep-eec, nep-ifn, nep-int and nep-mac
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