“has Trade Structure Any Importance in the Transmission of Currency Shocks? an Empirical Application for Central and Eastern European Acceding Countries to Eu”

Abstract

The object of this study is to assess the role of trade structure and firms pricing behaviour in the transmission of currency shocks across geographically close countries. The analysis will focus on identifying and comparing the degree of vulnerability to currency shocks of Central Eastern European Acceding countries (CEEACs) to EU. According to our results, data seem to suggest that, with an export similarity index of over 80 and low pass-through, the most vulnerable countries to a devaluation arising in Slovak high pass-through and a high share of bilateral trade within a region, can actually limit the extent of beggar-thy neighbour effects while the opposite applies to the remaining countries. Furthermore, Estonia, Czech and Slovak Republic, are relatively less integrated with the EU. The lower trade integration with the EU might suggest that these countries, which significantly trade also with non EU countries, could be also somewhat more exposed to external demand shocks originating from third countries. This paper has been partly developed at the Federal Reserve Bank of San Francisco. A previous version was presented at the 6th European Workshop on " EMU: Current status and future prospects " held in August 2003 in Rethymno – Crete. Thanks are due to Giuseppe De Arcangelis, Sergio de Nardis, Giancarlo Gandolfo, Reuven Glick and Manuela Nenna for many helpful comments and to Gianna Foschi for her efficient editorial assistance. Usual disclaimers apply. 3 SUMMARY The object of this study is to assess the role of trade structure and firms pricing behaviour in the transmission of currency shocks across geographically close countries. The analysis will focus on identifying and comparing the degree of vulnerability to currency shocks of Central Eastern European Acceding countries (CEEACs) to EU. I intend to interpret the interactions that the Centre-Periphery model (Corsetti et al. 1998b) identifies for Periphery countries as a possible description of interdependencies existing among CEEACs. " According to the Centre Periphery model if there is no pass-through, then direct bilateral trade links may play a more important role than competition in the third market in determining the transmission of exchange rate shocks in the periphery. If there is full pass-through, a high share of bilateral trade within a region can actually limit the extent of beggar-thy neighbour effects ". These effects are emphasized by a high degree of export similarity among the countries in the Periphery. The choice to focus on CEEACs is due …

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Cite this paper

@inproceedings{Santis2004hasTS, title={“has Trade Structure Any Importance in the Transmission of Currency Shocks? an Empirical Application for Central and Eastern European Acceding Countries to Eu”}, author={Roberta de Santis and Giuseppe De Arcangelis and Sergio de Nardis and Giancarlo Gandolfo and Reuven Glick and Manuela Nenna and Gianna Foschi}, year={2004} }