## 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

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### 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.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-euros-effecton-trade-imbalances-24269_