Readdressing the Trade Effect of the Euro: Allowing for Currency Misalignment

40 Pages Posted: 15 May 2010 Last revised: 17 May 2010

See all articles by Jan Hogrefe

Jan Hogrefe

ZEW – Leibniz Centre for European Economic Research

Benjamin Jung

University of Hohenheim

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2010

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

JEL Classification: F12, F13, F15

Suggested Citation

Hogrefe, Jan and Jung, Benjamin and Kohler, Wilhelm K., Readdressing the Trade Effect of the Euro: Allowing for Currency Misalignment (2010). ZEW - Centre for European Economic Research Discussion Paper No. 10-023, Available at SSRN: https://ssrn.com/abstract=1605197 or http://dx.doi.org/10.2139/ssrn.1605197

Jan Hogrefe (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Benjamin Jung

University of Hohenheim ( email )

Schloss-Mittelhof (Ost)
70593 Stuttgart
Germany

HOME PAGE: http://https://auwi.uni-hohenheim.de/jung0

Wilhelm K. Kohler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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