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The Hysteretic Effects on the Real Exchange Rates

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  • Dionysios Chionis
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    Abstract

    In this paper we investigate the dynamics developed from the exchange rate relative price relationship using a hysteresis framework. The rationale for such hysteretic effects is in terms of firms' unresponsiveness to the exchange rate changes due to pricing to market-type arguments.The empirical support of these ideas is derived by applying a linear approximation of the hysteretic effects.We conclude that the hysteretic effects are a source of non-linearity, strongly affecting the long-run relationship of exchange rate and prices.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 16 (2002)
    Issue (Month): 4 ()
    Pages: 451-463

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    Handle: RePEc:taf:irapec:v:16:y:2002:i:4:p:451-463

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    1. Rudiger Dornbusch, 1988. "Real Exchange Rates and Macroeconomics: A Selective Survey," NBER Working Papers 2775, National Bureau of Economic Research, Inc.
    2. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
    3. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
    4. Frankel, Jeff & Froot, Ken, 1986. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," Department of Economics, Working Paper Series qt1972q8wm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
    6. Ronald MacDonald, 1995. "Asset Market and Balance of Payments Characteristics," IMF Working Papers 95/55, International Monetary Fund.
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    Cited by:
    1. I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department.

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