Sector Sensitivity to Exchange Rates Fluctuations

The present study focuses on the impact of the euro/dollar fluctuations on the European manufacturing industries. It tries to classify European sectors according to the exposure to competition from the dollar zone and to their sensitivity to exchange rate fluctuations. Combining the results of the two classifications, sectors which may be highly affected by the euro/dollar fluctuations are identified. Exposure to the dollar zone is measured in a way that takes into account both competition by imports in the Single European Market, as well as competition to exports in the dollar zone and in third markets. The study shows strong asymmetries among European countries. To estimate sectors' sensitivity to exchange rate fluctuations, the regression relates trade volumes to exchange rate, cost and market structure variables. The estimation results evidence that cost considerations and exchange rates are important determinants of trade. The impact of exchange rate changes on trade varies across sectors. They are explained by concentration on the supply side and dynamics on the demand side