What the study found
The study found that real effective exchange rate, or REER, appreciations and depreciations did not have a statistically significant effect on trade balances in the EU sample. Instead, domestic absorption, especially consumption and investment, was associated with large and robust negative effects.
Why the authors say this matters
The authors conclude that external adjustment policies in the EU should focus on domestic demand management, structural competitiveness, and inflation discipline rather than relying on REER movements. The study suggests that exchange-rate-led adjustment is not empirically relevant in this highly integrated monetary union.
What the researchers tested
The researchers analyzed annual panel data for 20 EU countries from 2000 to 2024. They used fixed-effects and dynamic system generalized method of moments estimators within elasticity-based and absorption-based adjustment frameworks, while explicitly controlling for domestic absorption.
What worked and what didn't
REER appreciations and depreciations did not show statistically significant effects on trade balances. Domestic absorption, particularly consumption and investment, showed large and robust negative effects, and inflation had a weak but consistently adverse influence; structural features also appeared to condition any potential price-based adjustment.
What to keep in mind
The abstract notes that aggregate panel data may hide country-specific or sector-specific adjustment mechanisms and heterogeneous structural shocks. No other limitations are described in the available summary.
Key points
- REER appreciations and depreciations were not statistically significant predictors of trade balances.
- Domestic absorption had strong negative associations with trade balances, especially consumption and investment.
- Inflation had a weak but consistently adverse influence on trade balances.
- The study used annual panel data from 20 EU countries covering 2000 to 2024.
- The authors argue that EU adjustment policy should prioritize demand management, competitiveness, and inflation discipline.
Disclosure
- Research title:
- REER changes did not significantly affect EU trade balances
- Authors:
- Noah Mutai, Nol Krasniqi, Kehinde Oluseyi Olagunju, Cyrus Mutuku, Ekrem Gjokaj, Marcos Ferasso
- Institutions:
- Berlin School of Economics and Law, Berlin School of Economics and Law, Department of Agriculture and Rural Development, Information and Communication Technology Authority, Universidad Autónoma de Chile, University of Prishtina
- Publication date:
- 2026-04-06
- OpenAlex record:
- View
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