The Euro Exchange Rate and Germany's Trade Surplus

We estimate a three-region (DE-REA-RoW) structural macroeconomic model, and we provide a counterfactual on how nominal exchange rate flexibility would have affected the German trade balance (TB) by simulating the shocks of the estimated model under a counterfactual flexible exchange rate regime. The actual and counterfactual TB trajectories are similar overall. Results suggest an around 2 pp lower trade surplus during 2012-15 together with a stronger real effective exchange rate in the counterfactual. The latter shows a similar upward trend in the TB, however, and the 2012-15 gap between actual and counterfactual closes at the end of the sample.

Keywords: Germany, euro, exchange rate, trade balance

JEL Classification: E440, E520, E530, F410

Suggested Citation: Suggested Citation

Hohberger, Stefan and Ratto, Marco and Vogel, Lukas, The Euro Exchange Rate and Germany's Trade Surplus (2019). CESifo Working Paper No. 7543, Available at SSRN: https://ssrn.com/abstract=3352907 or http://dx.doi.org/10.2139/ssrn.3352907