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The euro's trade effect under cross-sectional heterogeneity and stochastic resistance

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  • Herwartz, Helmut
  • Weber, Henning

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.

Suggested Citation

  • Herwartz, Helmut & Weber, Henning, 2010. "The euro's trade effect under cross-sectional heterogeneity and stochastic resistance," Kiel Working Papers 1631, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1631
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    References listed on IDEAS

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    Cited by:

    1. Yasin YILDIRIM, 2018. "Is The Adoption Of The Euro A Story Of Success Or Failure? An Assessment Under Economic And Political Reflections," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(2), pages 107-117.
    2. Jiyong Chen & Dabo Chen & Aiping Yao, 2020. "Trade development between China and countries along the Belt and Road: A spatial econometric analysis based on trade competitiveness and complementarity," Pacific Economic Review, Wiley Blackwell, vol. 25(2), pages 205-227, May.
    3. Herwartz, Helmut & Weber, Henning, 2013. "The role of cross-sectional heterogeneity for magnitude and timing of the euro's trade effect," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 48-74.

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    More about this item

    Keywords

    Euro's trade effect; parameter heterogeneity; smooth-transition model;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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