Kiel Working Papers, Kiel Institute for World Economics
No 1631:
The Euro’s Trade Effect under Cross-Sectional Heterogeneity and Stochastic Resistance
Helmut Herwartz and Henning Weber
Abstract: This paper investigates if the euro's effect on euro-area
trade differs across trade sectors and across country pairs, and to what
degree heterogeneity matters for estimating the aggregate euro effect.
Time-varying latent variables, which are specific to each sector in each
country pair, control for omitted trade costs and mismeasured resistance
terms. Parameter heterogeneity and time-varying latent variables are both
strongly supported by the data. Due to decreasing trade costs, aggregate
exports within the euro area increase between 2000 and 2002 by 15 to 25
percent compared with aggregate exports between European economies which
are not members of the euro area. Adjustment within individual sectors is
rapid whereas aggregate adjustment is more spread out and gradual since
different sectors adjust at distinct times
Keywords: Euro's trade effect, parameter heterogeneity, smooth-transition model; (follow links to similar papers)
JEL-Codes: C31,; C33,; F13,; F15,; F33,; F42; (follow links to similar papers)
33 pages, June 2010
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