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The Euro’s Effecton Trade Imbalances
Author:
Mr. Helge Berger
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and
Volker Nitsch null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 226
Language:
English
Publication Date:
01 Oct 2010
DOI:
https://doi.org/10.5089/9781455208913.001
ISBN:
9781455208913
ISSN:
1018-5941
Pages:
30
Keywords:
WP; trade imbalance; member country; dependent variable; imbalances; trade balance; trade surplus; trade deficit; euro; EMU; European integration; product market; × EMU; exchange rate variability; area trade; exchange rate volatility; euro area member; Plurilateral trade; Trade surpluses; Exchange rates; Trade deficits
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund