Readdressing the trade effect of the Euro: Allowing for currency misalignment

Jan Hogrefe (), Benjamin Jung and Wilhelm K. Kohler

No 10-023, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We know that euro-area member countries have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional trade cost channel and trade effects deriving from 'implicit currency misalignment'. Econometric estimation reveals that the currency misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country specific estimates of the euro effect on trade based on misalignment. This reveals asymmetric trade effects and heterogeneous outlooks across countries for the costs and benefits from adopting the euro.

Keywords: Euro; gravity model; exchange rates; purchasing power parity; trade imbalances (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-eec, nep-int, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Putting currency misalignment into gravity: The currency union effect reconsidered (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:10023

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