Currency Shocks and Dynamics of Trade Flows in the Euro Area: Evidence from Quarterly and Monthly Data

34 Pages Posted: 27 May 2004

See all articles by Daniele Antonucci

Daniele Antonucci

Confederation of Italian Industries, Research Department

Alessandro Girardi

National Institute of Statistics (ISTAT)

Date Written: July 2004

Abstract

This work examines euro area's trade flows over the last two decades, taking jointly into account their long-run determinants and short-run dynamics. This framework builds on a reinterpretation of the long-run structural vector autoregressive approach, drawing from both economic theory and econometric analysis. Generalized impulse response functions are employed to assess the effects of a real exchange rate shock on the trade balance, using different model specifications and frequencies of data. The main findings are: i) euro-area's trade flows are determined in the long-run by non-price competitiveness factors; ii) short-run adjustments follow an S-pattern; iii) a real devaluation produces detrimental effects on the trade balance.

Keywords: Euro area, trade balance, real exchange rate, long-run structural VAR approach, Subset VECM, impulse response analysis, data frequency

JEL Classification: C32, C52, F32, F41

Suggested Citation

Antonucci, Daniele and Girardi, Alessandro, Currency Shocks and Dynamics of Trade Flows in the Euro Area: Evidence from Quarterly and Monthly Data (July 2004). Available at SSRN: https://ssrn.com/abstract=550864 or http://dx.doi.org/10.2139/ssrn.550864

Daniele Antonucci (Contact Author)

Confederation of Italian Industries, Research Department ( email )

viale dell'Astronomia, 30
00144, Rome
Italy
+39 06 5903256 (Phone)

Alessandro Girardi

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

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