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Journal of Economic Integration 2007 December;22(4) :780-818.
Trade Effects of the Euro: a Comparison of Estimators

Richard Baldwin Daria Taglioni 

Graduate Institute of International Studies
European Central Bank
Copyright ©2007 Journal of Economic Integration

This paper provides a minimalist derivation of the gravity equation and uses it to identify three common errors in the literature, what we call the gold, silver and bronze medal errors. The paper provides estimates of the size of the biases taking the currency union trade effect as an example. We argue that the best estimator involves time-varying country dummies, a time dummy and time-invariant pair dummies.

JEL classification: F41

Keywords: Trade | Euro | Gravity
1. Alho, K. (2002) "The Impact of Regionalism on Trade in Europe," Royal Economic Society Annual Conference 2003 3, Royal Economic Society.
2. Anderson, James (1979) "The theoretical foundation for the gravity equation," American Economic Review 69, 106-116.
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