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Insignificant and Inconsequential Hysteresis: The Case of U.S. Bilateral Trade

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  • Parsley, David C
  • Wei, Shang-Jin

Abstract

This paper casts doubt on the validity of the hysteresis hypothesis as an explanation of the persistent U.S. trade deficits in the 1980s. The authors propose two tests to investigate two different implications of the hypothesis. The first implication is that cumulative changes in exchange rates, in addition to current exchange rate levels, are important determinants of trade flows. The second implication is that foreign exporting firms' perceptions of exchange rate volatility will affect their decisions to enter or exit the market. The authors find little support for either aspect of the hysteresis hypothesis. Copyright 1993 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 75 (1993)
Issue (Month): 4 (November)
Pages: 606-13

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Handle: RePEc:tpr:restat:v:75:y:1993:i:4:p:606-13

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Cited by:
  1. Ansgar Belke & Matthias Göcke & Martin Guenther, 2012. "Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports – Sectoral Evidence for Some OECD Destinations," Ruhr Economic Papers 0327, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Breuer, Janice Boucher & Clements, Leianne A., 2003. "The commodity composition of US-Japanese trade and the yen/dollar real exchange rate," Japan and the World Economy, Elsevier, vol. 15(3), pages 307-330, August.
  3. Zhang, Yin & Wan, Guanghua, 2004. "What Accounts for China's Trade Balance Dynamics?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Nikolaychuk Sergiy & Shapovalenko Nadiia, 2013. "The identification of the sources of current account fluctuations in Ukraine," EERC Working Paper Series 13/12e, EERC Research Network, Russia and CIS.
  5. I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department.
  6. Belke, Ansgar & Göcke, Matthias, 2004. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," IZA Discussion Papers 1126, Institute for the Study of Labor (IZA).
  7. Gilles Saint-Paul, 2009. "Le dollar, l’innovation et l’emploi," Revue d'Économie Financière, Programme National Persée, vol. 94(1), pages 107-115.
  8. David C. Parsley & Shang-Jin Wei, 1994. "Insignificant and Inconsequential Hysteresis: The Case of the U.S. Bilateral Trade," NBER Working Papers 4738, National Bureau of Economic Research, Inc.
  9. Chung, Chris Changwha & Beamish, Paul W., 2005. "Investment mode strategy and expatriate strategy during times of economic crisis," Journal of International Management, Elsevier, vol. 11(3), pages 331-355, September.
  10. Campa, José Manuel, 2000. "Exchange Rates and Trade: How Important is Hysteresis in Trade?," CEPR Discussion Papers 2606, C.E.P.R. Discussion Papers.
  11. Axarloglou, Kostas & Kouvelis, Panos, 2007. "Hysteresis in adjusting the ownership structure of foreign subsidiaries," International Business Review, Elsevier, vol. 16(4), pages 494-506, August.
  12. Matthias G�cke & Ansgar Belke, 1999. "Micro and Macro Hysteresis in Employment under Exchange Rate Uncertainty," Computing in Economics and Finance 1999 722, Society for Computational Economics.
  13. Belke, Ansgar & Göcke, Matthias & Guenther, Martin, 2009. "When does it hurt? The exchange rate "pain threshold" for German exports," Discussion Papers 45, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
  14. Kannebley Jr., Sergio, 2008. "Tests for the hysteresis hypothesis in Brazilian industrialized exports: A threshold cointegration analysis," Economic Modelling, Elsevier, vol. 25(2), pages 171-190, March.
  15. Zhang, Yin & Wan, Guanghua, 2008. "Correcting China's trade imbalance: Monetary means will not suffice," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 505-521.
  16. Anderson, Michael A. & Smith, Stephen L.S., 2007. "How does history matter? Hysteresis in Canadian trade," The North American Journal of Economics and Finance, Elsevier, vol. 18(3), pages 279-291, December.

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