Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us?

36 Pages Posted: 1 Oct 2014

Date Written: September 19, 2014

Abstract

This study examines the marginal effects of traditional determinants of exports and imports with a focus on the role of price competitiveness in restoring external balances. It is a first attempt to compare marginal effects of various harmonised competitiveness indicators (HCIs) on both exports and imports of both goods and services across individual euro area countries. We find evidence that HCIs based on broader cost and price measures have a larger marginal effect (with some exceptions) on exports of goods. Exports of services are sensitive to HCIs in big euro area countries and Slovakia, where exports of services are also found more sensitive to competitiveness indicators based on broader price measures. Imports of goods and imports of services are quite insensitive to changes in relative prices. Finally, in some cases measures of fit indicate that a large unexplained residual part is present, implying that other non-price related factors might play an important role in driving foreign trade.

Keywords: real exchange rate, export, imports, price competitiveness, euro area

JEL Classification: F14, F31, F41

Suggested Citation

Christodoulopoulou, Styliani and Tkacevs, Olegs, Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us? (September 19, 2014). ECB Working Paper No. 1736, Available at SSRN: https://ssrn.com/abstract=2498602

Styliani Christodoulopoulou (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Olegs Tkacevs

Latvijas Banka ( email )

K. Valdemara iela 2a
Riga LV-1050
Latvia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
38
Abstract Views
380
PlumX Metrics