The Euro’s Effecton Trade Imbalances
IMF Working Papers, October 1, 2010
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Bibliographic details
- Authors: Helge Berger, Volker Nitsch
- Published: October 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455208913.001
Research scope and data
- Sample: 18 European countries.
- Period: 1948 through 2008.
- Publication: IMF Working Paper No. 2010/226, Pages: 30, Volume: 2010, Issue: 226, DOI: https://doi.org/10.5089/9781455208913.001, ISBN: 9781455208913, ISSN: 1018-5941.
- Authors: Helge Berger, Volker Nitsch.
- Publication date: October 1, 2010.
Main findings on trade imbalances
- With the introduction of the euro, trade imbalances among euro area members widened considerably.
- Widening persisted even after allowing for:
- Permanent asymmetries in trade competitiveness within pairs of countries.
- Permanent asymmetries in the overall trade competitiveness of individual countries.
- Evidence is consistent with pair-wise trade being more balanced when nominal exchange rates are flexible.
- Intra-euro area imbalances became more persistent after the euro’s introduction; part of this increased persistence is linked to labor market inflexibility.
Determinants and direction of bilateral trade surpluses
- Bilateral trade surpluses are:
- Decreasing in the real exchange rate.
- Decreasing in growth differentials.
- Increasing in the relative volatility of national business cycles.
- Countries with:
- Relatively higher fiscal deficits, and
- Less flexible labor and product markets
exhibit systematically lower trade surpluses than others.
Policy-relevant implications (implicit in analysis)
- Maintaining nominal exchange rate flexibility appears associated with more balanced pair-wise trade.
- Labor market flexibility may reduce the persistence of intra-euro area trade imbalances.
- Fiscal consolidation and reforms to increase labor and product market flexibility could support higher trade surpluses where desired.
- Monitoring relative volatility of national business cycles is relevant because higher relative volatility can be associated with larger bilateral surpluses.
Helge Berger, Volker Nitsch, The Euro’s Effecton Trade Imbalances, IMF Working Paper No. 2010/226.