Abstract
Over the past half century, Western Europe has been part of varying currency regimes. Yet, whether under Bretton Woods, the European Monetary System, or the Euro, exchange-rate fluctuations have had an influence on these countries’ trade flows with the United States at the national and the industry level. This study looks at the case of Spain, examining the role of real exchange-rate fluctuations on trade with the United States for 74 industries. We find that the trade balances of only 40 industries are cointegrated with their macroeconomic determinants, but that 26 of these respond positively in the long run to a real depreciation. While industry characteristics do not seem to explain which industries are more likely to do this, we find that a relatively large share of industries in the Machinery sector see their trade balances improve after a depreciation.
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Notes
More precisely the lagged error-correction term is formed using \( {\text{ECM}}_{t - 1} = \ln \left( {\frac{{X_{i,t - 1} }}{{M_{i,t - 1} }}} \right) - \frac{{\hat{\theta }_{2} }}{{\hat{\theta }_{1} }}\ln Y_{t - 1}^{\text{US}} - \frac{{\hat{\theta }_{3} }}{{\hat{\theta }_{1} }}\ln Y_{t - 1}^{\text{Spain}} - \frac{{\hat{\theta }_{4} }}{{\hat{\theta }_{1} }}\ln {\text{REX}}_{t - 1} \) formula.
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Appendix
Appendix
1.1 Data definitions and sources
All data are annual (1962–2009) and are collected from the following sources:
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(a)
The World Bank.
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(b)
The International Financial Statistics of the IMF.
1.1.1 Variables
\( \left( \frac{X}{M} \right) \) = For each industry, this is the ratio of Spain’s exports to the United States over its imports from the United States. The data for 74 industries come from source a; Y Spain = Spanish real GDP. The data come from source b; Y US = US real GDP, source b; REX = Real bilateral exchange rate between the Spanish peseta and the dollar, defined as \( \left( {\frac{{{\text{CPI}}_{\text{US}} \times {\text{NEX}}}}{{{\text{CPI}}_{\text{Spain}} }}} \right), \) where CPI is the Consumer Price Index. NEX is the nominal bilateral exchange rate defined as number of pesetas per dollar. Thus, an increase in REX reflects a real depreciation of Spain’s currency. Beginning in 1999, the Euro/dollar nominal rate is converted to pesetas at the rate of 166.386 pesetas per Euro. All these variables come from source b.
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Bahmani-Oskooee, M., Harvey, H. & Hegerty, S.W. Regime changes and the impact of currency depreciations: the case of Spanish–US industry trade. Empirica 40, 21–37 (2013). https://doi.org/10.1007/s10663-011-9176-1
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DOI: https://doi.org/10.1007/s10663-011-9176-1