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Trade effects of the EMU: A panel data study of the importance of exchange rate volatility

Carlsson, Cecilia LU (2011) NEKM01 20111
Department of Economics
Abstract
This essay investigates the impact on trade flows of the formation of the European Monetary Union (EMU) and whether countries with differences in the degree of exchange rate volatility prior to the adoption of the euro have experienced such trade effects to different extents. The gravity model forms the basis for the study, which is performed using a fixed effects-method on panel data from 24 OECD-countries between 1995 and 2005.

To a large extent, the results support the hypothesis that countries with high pre-EMU exchange rate volatility have experienced larger increases in trade flows than countries with low pre-EMU exchange rate volatility. In most specifications, the study reports significant and positive coefficients for the... (More)
This essay investigates the impact on trade flows of the formation of the European Monetary Union (EMU) and whether countries with differences in the degree of exchange rate volatility prior to the adoption of the euro have experienced such trade effects to different extents. The gravity model forms the basis for the study, which is performed using a fixed effects-method on panel data from 24 OECD-countries between 1995 and 2005.

To a large extent, the results support the hypothesis that countries with high pre-EMU exchange rate volatility have experienced larger increases in trade flows than countries with low pre-EMU exchange rate volatility. In most specifications, the study reports significant and positive coefficients for the high-volatility group. The effects of the common currency on countries with low volatility are however inconclusive. (Less)
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author
Carlsson, Cecilia LU
supervisor
organization
course
NEKM01 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
EMU, trade effects, exchange rate volatility, gravity model, fixed effects-method
language
English
id
2117039
date added to LUP
2011-09-27 09:08:19
date last changed
2011-09-27 09:08:19
@misc{2117039,
  abstract     = {This essay investigates the impact on trade flows of the formation of the European Monetary Union (EMU) and whether countries with differences in the degree of exchange rate volatility prior to the adoption of the euro have experienced such trade effects to different extents. The gravity model forms the basis for the study, which is performed using a fixed effects-method on panel data from 24 OECD-countries between 1995 and 2005. 

To a large extent, the results support the hypothesis that countries with high pre-EMU exchange rate volatility have experienced larger increases in trade flows than countries with low pre-EMU exchange rate volatility. In most specifications, the study reports significant and positive coefficients for the high-volatility group. The effects of the common currency on countries with low volatility are however inconclusive.},
  author       = {Carlsson, Cecilia},
  keyword      = {EMU,trade effects,exchange rate volatility,gravity model,fixed effects-method},
  language     = {eng},
  note         = {Student Paper},
  title        = {Trade effects of the EMU: A panel data study of the importance of exchange rate volatility},
  year         = {2011},
}