The Euro’s Effecton Trade Imbalances

October 1, 2010

Preview Citation

Format: Chicago

Helge Berger, and Volker Nitsch. The Euro’s Effecton Trade Imbalances, (USA: International Monetary Fund, 2010) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

When does trade become a one-way relationship? We study bilateral trade balances for a sample of 18 European countries over the period from 1948 through 2008. We find that, with the introduction of the euro, trade imbalances among euro area members widened considerably, even after allowing for permanent asymmetries in trade competitiveness within pairs of countries or in the overall trade competitiveness of individual countries. This is consistent with indications that pair-wise trade tends to be more balanced when nominal exchange rates are flexible. Intra-euro area imbalances also seem to have become more persistent with the introduction of the euro, some of which is linked to labor market inflexibility. Reviewing the direction of imbalances, we find that bilateral trade surpluses are decreasing in the real exchange rate, decreasing in growth differentials, and increasing in the relative volatility of national business cycles. Finally, countries with relatively higher fiscal deficits and less flexible labor and product markets exhibit systematically lower trade surpluses than others.

Subject: Exchange rates, Foreign exchange, International trade, Plurilateral trade, Trade balance, Trade deficits, Trade surpluses

Keywords: × EMU, Area trade, Dependent variable, EMU, Euro, Euro area member, European integration, Exchange rate variability, Exchange rate volatility, Exchange rates, Imbalances, Member country, Plurilateral trade, Product market, Trade balance, Trade deficit, Trade deficits, Trade imbalance, Trade surplus, Trade surpluses, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/226
Stock No:

WPIEA2010226
ISBN:

9781455208913
ISSN:

1018-5941

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