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Richard E. Baldwin

1 June 2003
WORKING PAPER SERIES - No. 238
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Abstract
Two seemingly unconnected empirical results suggest an intriguing mechanism. First, economic integration helps harmonize prices internationally, with trade being the primary channel (Rogoff 1996, Goldberg and Knetter 1997). Second, monetary union may greatly increase the amount of trade among members (Rose 2001). Putting these together, we see that formation of a monetary union may induce changes that help harmonise inflation rates. The effect might be large if the elimination of exchange rate volatility simultaneously leads to a large increase in intra-union trade and a big increase in the speed at which price shocks are transmitted across members' goods markets. This paper investigates part of this mechanism and finds that monetary union may indeed result in faster cross-border transmission of price movements via the import and export price channel which, in turn, would tend to homogenise price movements across the member countries of a monetary union.
JEL Code
D40 : Microeconomics→Market Structure and Pricing→General
F15 : International Economics→Trade→Economic Integration
F31 : International Economics→International Finance→Foreign Exchange
28 February 2005
WORKING PAPER SERIES - No. 446
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Abstract
This paper contributes to the literature on the impact of EMU on trade, adding two new elements. First, we propose a theoretical model for explaining how the euro could have increased trade by the large amounts found in the empirical literature. Second, we propose a sectoral dataset to test the insights from the theory. Our theoretical model shows that in a monopolistic competition set-up, the effect of exchange rate uncertainty on trade has nonlinear features, suggesting that EMU and a standard measure for exchange rate uncertainty should be jointly significant. Our empirical results confirm this finding, with a trade creating effect between 108 and 140% in a pooled regression, and between 54 to 88% when sectors are estimated individually. Importantly, we find evidence for a trade creating effect also for trade with third countries.
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E0 : Macroeconomics and Monetary Economics→General
23 March 2006
WORKING PAPER SERIES - No. 594
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Abstract
This paper reviews reassesses the methodology and principal findings of the "Rose effect"
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E0 : Macroeconomics and Monetary Economics→General
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Proceedings of June 2005 workshop on what effects is EMU having on the euro area and its member countries?
28 November 2011
WORKING PAPER SERIES - No. 1401
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Abstract
Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of value added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.
JEL Code
F01 : International Economics→General→Global Outlook
F10 : International Economics→Trade→General