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Do export price elasticities support tensions in currency markets? Evidence from China and six OECD countries

Author

Listed:
  • Aiello, Francesco
  • Bonanno, Graziella
  • Via, Alessia
Abstract
The empirical literature on trade imbalances does not make currency tensions easy to understand, because tensions across traders originate from the assumption that export-price elasticity is high. This paper provides new evidence by analysing the export-behaviour of China, France, Germany, Italy, Japan, UK, and the USA from 1990 to 2012. Estimates of export-price elasticities have been made using panel data techniques for non-stationary data. Long run relationships are stable to any structural break and indicate that exports are heavily dependent on world income, with long run income elasticity significantly higher than unity in many cases (China, Japan, Germany, UK and USA). Conversely, exports are price inelastic for most of the countries in the sample, in both the long and short runs. The exception is France, whose exports in the long run would increase by 2 percent if the country experienced a 1 percent depreciation of its real exchange rate.

Suggested Citation

  • Aiello, Francesco & Bonanno, Graziella & Via, Alessia, 2014. "Do export price elasticities support tensions in currency markets? Evidence from China and six OECD countries," MPRA Paper 56727, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56727
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    References listed on IDEAS

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    More about this item

    Keywords

    Export elasticity; competitive Devaluation; currency wars; panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F10 - International Economics - - Trade - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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