ABSTRACT
This chapter investigates the euros trade effects in European Economic and Monetary Union (EMU) countries by adopting some recent methodological advances in the empirical literature. It attempts to find out the impact of the euro adoption on bilateral trade and exports using a panel dataset on European economies extending over more than a decade and using more suitable methodology. Cieslik et al. conclude that the adoption of the euro results in trade expansion for the Central and Eastern European (CEE) countries. The Hausman-Taylor (HT) estimator cures the all or nothing problem associated with the fixed-effects model or the random-effects model as it allows some explanatory variables included in the model to be considered as instruments. Monthly nominal exchange rate data used to calculate the annual nominal bilateral exchange rate volatility between any pair of countries is retrieved from the International Monetary Fund (IMF) International Financial Statistics (IFS).
