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Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports: Sectoral Evidence for Some OECD Destinations

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  • Ansgar Belke
  • Matthias Göcke
  • Martin Günther

Abstract

A non-linear model is applied where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction. We call the latter a "play" area - analogous to mechanical play and implement an algorithm describing path-dependent playhysteresis into a regression framework. The hysteretic impact of real exchange rates on German exports is then estimated based on quarterly data from 1995Q1 to 2010Q3. For some of the main export partners of Germany outside the euro area and some of the most important tradable sectors we find significant hysteretic effects for a part of the German exports.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.398003.de/dp1203.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1203.

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Length: 22 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwwpp:dp1203

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Keywords: exchange rate movements; play-hysteresis; modelling techniques; switching/spline regression; export demand;

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References

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  1. Parsley, David C & Wei, Shang-Jin, 1993. "Insignificant and Inconsequential Hysteresis: The Case of U.S. Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 606-13, November.
  2. 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.
  3. I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department.
  4. Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
  5. Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc.
  6. Kerstin Stahn, 2007. "Has the Export Pricing Behaviour of German Enterprises Changed? Empirical Evidence from German Sectoral Export Prices," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(3), pages 295-329, June.
  7. Cross, Rod, 1994. "The Macroeconomic Consequences of Discontinuous Adjustment: Selective Memory of Non-dominated Extrema," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 212-21, May.
  8. 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).
  9. Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
  10. Andrew B. Bernard & Joachim Wagner, 1998. "Export Entry and Exit by German Firms," NBER Working Papers 6538, National Bureau of Economic Research, Inc.
  11. Godart, Olivier N. & Görg, Holger & Görlich, Dennis, 2009. "Back to normal? The future of global production networks after the crisis," Open Access Publications from Kiel Institute for the World Economy 32840, Kiel Institute for the World Economy (IfW).
  12. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
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Cited by:
  1. Verheyen, Florian, 2013. "Exchange rate nonlinearities in EMU exports to the US," Economic Modelling, Elsevier, vol. 32(C), pages 66-76.
  2. Göcke, Matthias, 2013. "Play-Hysteresis in Supply as Part of a Market Model," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79695, Verein für Socialpolitik / German Economic Association.
  3. Göcke, Matthias, 2012. "Play-hysteresis in supply as part of a market model," Discussion Papers 61, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
  4. Ansgar Belke, 2014. "Exit Strategies and Their Impact on the Euro Area - A Model Based View," Ruhr Economic Papers 0467, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Ansgar Belke & Anne Oeking & Ralph Setzer, 2013. "Exports and Capacity Constraints – A Smooth Transition Regression Model for Six Euro Area Countries," ROME Working Papers 201313, ROME Network.
  6. Belke, Ansgar & Oeking, Anne & Setzer, Ralph, 2014. "Exports and Capacity Constraints: A smooth transition regression model for six euro-area countries," CEPS Papers 9228, Centre for European Policy Studies.

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