This article analyses developments in the external sector for the Euro Area and its major competitors and quantifies the dynamic contributions of the key determinants of trade to export volume behaviour. In addition to the traditional variables affecting export volumes, price and foreign demand, an unobserved component in the form of a time-varying trend enters the export equations to capture underlying non-price competitiveness. The structural modelling approach used within an error correction framework allows isolating the different sources of trade fluctuations and to better assess the contribution of each set of variables to export flows. The findings confirm that stochastic trends are present as a result of technical change and other exogenous factors driving export flows, and that a failure to account for these trends will lead to biased estimates of long-run price elasticities.

Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors / Algieri, Bernardina. - In: EMPIRICAL ECONOMICS. - ISSN 0377-7332. - 41:3(2011), pp. 593-637.

Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors

ALGIERI, Bernardina
2011

Abstract

This article analyses developments in the external sector for the Euro Area and its major competitors and quantifies the dynamic contributions of the key determinants of trade to export volume behaviour. In addition to the traditional variables affecting export volumes, price and foreign demand, an unobserved component in the form of a time-varying trend enters the export equations to capture underlying non-price competitiveness. The structural modelling approach used within an error correction framework allows isolating the different sources of trade fluctuations and to better assess the contribution of each set of variables to export flows. The findings confirm that stochastic trends are present as a result of technical change and other exogenous factors driving export flows, and that a failure to account for these trends will lead to biased estimates of long-run price elasticities.
Exports; Stochastic trends; Price elasticities
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/20.500.11770/134910
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