Bilateral and regional trade elasticities of the EU |
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Authors: | Natalya Ketenci Idil Uz |
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Institution: | (1) Center for Research on International Economics and the Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, WI, USA;(2) Department of Economics, University of Wisconsin-Sheboygan, Sheboygan, WI, USA |
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Abstract: | The traditional way of assessing the impact of currency depreciation and income on the trade balance has been to estimate
the elasticity of trade volume to relative prices and income. The previous studies examine the problems associated with using
aggregate data. The recent studies rely on bilateral data, yet another problem is that data for export and import prices are
not available. Thus, this study proposes an alternative way of assessing the impact of currency depreciation by using the
real exchange rate and the impact of income on bilateral trade. The models are applied between the EU and its major trading
partners. Furthermore, the analysis includes the six major trading regions along side the eight major trading countries for
1980–2007, on the quarterly basis. This article uses the autoregressive distributive lag (ARDL) approach advocated by Pesaran
and Pesaran (1997). Our results indicate a higher importance of income compared to the real exchange rate in defined bilateral
export and import demand functions. In addition, the applied CUSUM and CUSUMSQ stability tests confirm the stability of estimated
coefficients in most cases. |
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Keywords: | |
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