The present paper addresses two questions. First, how does exchange rate overshooting affect hysteresis in trade and competitiveness? Second, how does "short-termism" alter the magnitude of such hysteresis effects? The paper models the dynamic processes of hysteresis in trade and competitiveness in terms of the presence of discrete, asymmetric lump-sum costs of entry, in response to unanticipated foreign policy shocks. The paper produces some important new insights into the role of short run adjustment processes in understanding persistence effects in key macroeconomic indicators. Copyright 2002 by The Economic Society of Australia.
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Article provided by The Economic Society of Australia in its journal The Economic Record.
Volume (Year): 78 (2002) Issue (Month): 240 (March) Pages: 60-67 Download reference. The following formats are available: HTML
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