This report analyses the impact of the real exchange rate two years beforehand and the GDP on Germany’s trade surplus between the second quarter 1993 and the first quarter 2007. It is found that both factors had significant impact on Germany’s trade surplus during the analysed period. Use of a piecewise linear regression technique, moreover, identifies changes in the development of Germany’s trade surplus over time. A temporary downward shift in the consistent growth trend of Germany’s trade surplus between the first quarter 1998 and the fourth quarter 2002 is seen to be due to changes in Germany’s fiscal and monetary policy during the introduction phase of the Euro.
Table of Contents
0. Abstract
1. Introduction
2. Theoretical Considerations
3. Germany’s Trade Surplus Model
3.1. The Methodology
3.2. The Data
3.3. Discussion of the Estimation Results and their Implications
4. Conclusion
Objectives and Research Focus
This report investigates the relationship between Germany's real exchange rate (with a two-year time lag) and its Gross Domestic Product (GDP) regarding their influence on the national trade surplus from the second quarter of 1993 to the first quarter of 2007, aiming to identify statistical correlations and temporal shifts in development.
- Analysis of the impact of the real exchange rate on trade performance.
- Evaluation of GDP as a determinant of the German trade surplus.
- Application of piecewise linear regression to identify structural changes over time.
- Assessment of the effects of fiscal and monetary policy changes during the Euro introduction phase.
Excerpt from the Publication
3. Germany’s Trade Surplus Model
In light of the above considerations the following model can be derived to examine the relationship between trade surplus, GDP and real exchange rate over the time series from 2Q.1993 to 1Q.2007:
TSt = α + β1RERt-8 + β2GDPt (I)
TSt stands for Germany’s total trade surplus in billion Euros based on exports (f.o.b.) and imports (f.o.b.) in a certain quarter t within the time period from 2Q.1993 to 1Q.2007. RERt-8 represents an index of Germany’s average quarterly real exchange rate two years (eight quarters) before the present quarter t with the second quarter 1991 indexed as 100. This variable entails the earlier explained time lag. Finally the GDPt is the value of Germany’s gross domestic product in billion Euros in the respective quarter. In light of the earlier made theoretical considerations regarding exchange rate and GDP effects on Germany’s trade surplus, β1 is expected to have a negative a priori sign and β2 to have a positive one.
Taking the analysis a step further, a closer look at the course of Germany’s real exchange rate reveals three major trends regarding its real exchange rate (see Exhibit 2). Between 2Q.1991 and 4Q.1995 it keeps almost steadily increasing. From 1Q.1996 onwards the real exchange rate saw a nearly constant drop until 4Q.2000 which was only briefly interrupted during the second half of 1997 and 1998.
Summary of Chapters
0. Abstract: Provides a high-level overview of the regression analysis results and identifies the temporary shift in trade surplus growth during the Euro introduction.
1. Introduction: Outlines the importance of the real exchange rate for international business and introduces the research objective regarding Germany's export competitiveness.
2. Theoretical Considerations: Discusses the expected economic relationship between the real exchange rate, GDP, and the trade surplus, while addressing the debate on trade-led versus export-led growth.
3. Germany’s Trade Surplus Model: Presents the mathematical regression model used for the analysis, including definitions of variables and the methodology for incorporating time lags and structural breaks.
3.1. The Methodology: Details the specific regression equation and the theoretical justification for the chosen variables and time frame.
3.2. The Data: Describes the source and preparation of the quarterly data used for the study, including the conversion of currency values from Deutsche Mark to Euro.
3.3. Discussion of the Estimation Results and their Implications: Interprets the statistical findings of the model and compares estimated versus actual trade surplus values.
4. Conclusion: Synthesizes the final findings regarding the significant impact of the variables and acknowledges the limitations of the current study.
Keywords
Germany, Trade Surplus, Real Exchange Rate, GDP, International Business, Piecewise Linear Regression, Euro, Economic Policy, Macroeconomics, Export Competitiveness, Time Lag, Trade Balance, Econometrics, Financial Statistics.
Frequently Asked Questions
What is the primary focus of this research?
The research examines the quantitative impact of the real exchange rate and GDP on Germany's trade surplus between 1993 and 2007.
What are the core themes explored?
The core themes include international trade competitiveness, the effects of currency valuation, the influence of macroeconomic growth, and the structural impact of the Euro's introduction on German trade.
What is the central research question?
The study aims to determine whether a statistically significant correlation exists between Germany's real exchange rate (with a two-year lag) and its trade surplus, alongside the impact of national GDP.
Which scientific method is applied?
The author employs a piecewise linear regression technique to analyze the data, allowing for the isolation of different time phases and trend shifts.
What is covered in the main body of the work?
The main body establishes the theoretical framework, defines the econometric model, describes the data collection process, and evaluates the regression results.
Which keywords best describe this study?
Key terms include Trade Surplus, Real Exchange Rate, GDP, Germany, Econometrics, and Export-led growth.
Why was a two-year time lag included in the analysis?
The lag accounts for the time required for importers and exporters to adapt to exchange rate changes, specifically regarding long-term contracts and capital-intensive machinery orders.
What does the regression result reveal about the Euro introduction?
The results show a noticeable downward shift in the consistent growth trend of the trade surplus between 1998 and 2002, likely due to fiscal and monetary policy adjustments during the Euro's inception.
- Quote paper
- Jens Hillebrand (Author), 2007, Trade Surplus in Germany, Munich, GRIN Verlag, https://www.grin.com/document/87790
