Abstract

This thesis starts with an overview of the costs, for trade flows, of crossing borders (a.k.a. border effect) and an assessment of the importance of volatile exchange rates as an impediment to trade. Second, it estimates the impact of EMU and exchange rate uncertainty on trade volumes and formulates regularities on the trade effects, of exchange rate regime changes. Finally, it turns to the effect of monetary union and exchange rate variability on the international transmission of price shocks via the imported/exported inflation channel. Two findings emerge as fundamental: first, exchange rate volatility has a negative impact on trade. Moreover, the effect appears to be nonlinear, and monetary union seems to affect trade volumes and prices even when controlling for exchange rate volatility. Second, sector-specific estimates of the trade effects of both exchange rate volatility and monetary union show a rough correlation between the size of the effects and sectors marked by imperfect competition and increasing returns, more than trade in competitive sectors

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