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Abstract

This paper deals with the impact of the $/€ exchange rate on German exports in the period from 1995Q1 to 2008Q4. Our main aim is to identify 'pain thresholds' for German exporters. We rely on a non-linear model according to which suddenly strong spurts of exports occur when changes of the EXR go beyond a kind of 'play' area (analogous to a mechanical play). We implement an algorithm describing play-hysteresis into a regression framework. A unique 'pain threshold' of the $/€ exchange rate does not exist, since the borders of the play area and, thus, also the 'pain threshold' (as the upper border) depend on the historical path of the whole process. We come up with an estimate of a play area width of 24 US dollar cent per euro. At the end of our estimation period, the previous exchange rate movements had shifted the upper bound of the play area to about 1.55 US dollar per euro. In our interpretation, this is the current 'pain threshold', where a strong spurt reaction of exports to a further appreciation of the euro is expected to start. --

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Bibliographic Info

Paper provided by Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU) in its series Discussion Papers with number 45.

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Date of creation: 2009
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Handle: RePEc:zbw:zeudps:45

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Web page: http://www.uni-giessen.de/cms/faculties/research-centers/zeu-en/view
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Related research

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

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Find related papers by JEL classification:

• C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
• C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
• E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
• F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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1. 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.
2. Gocke, Matthias, 2002. " Various Concepts of Hysteresis Applied in Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 16(2), pages 167-88, April.
3. Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
   
   • Darby, Julia, et al, 1999. "The Impact of Exchange Rate Uncertainty on the Level of Investment," Economic Journal, Royal Economic Society, vol. 109(454), pages C55-67, March.
   • 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.
4. 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.
5. 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.
6. I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department.
7. Campa, José Manuel, 2000. "Exchange Rates and Trade: How Important is Hysteresis in Trade?," CEPR Discussion Papers 2606, C.E.P.R. Discussion Papers.
   
   • Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
   • Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
8. Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc.
9. Andrew B. Bernard & Joachim Wagner, 1998. "Export Entry and Exit by German Firms," NBER Working Papers 6538, National Bureau of Economic Research, Inc.
   
   • Andrew Bernard & Joachim Wagner, 2001. "Export entry and exit by German firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 105-123, March.
10. Godart, Olivier N. & Görg, Holger & Görlich, Dennis, 2009. "Back to normal? The future of global production networks," Open Access publications from Kiel Institute for the World Economy info:hdl:10419/32970, Kiel Institute for the World Economy.
11. Ansgar Belke & Matthias Göcke, 2005. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 185-203, 05.
    
    • 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).
12. 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 9, Kiel Institute for the World Economy.
13. Richard Baldwin, 1988. "Some Empirical Evidence on Hysteresis in Aggregate US Import Prices," NBER Working Papers 2483, National Bureau of Economic Research, Inc.
14. 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.
15. 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. Ansgar Belke, 2010. "Financial Crisis, Global Liquidity and Monetary Exit Strategies," Ruhr Economic Papers 0183, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
   
   • Ansgar Belke, 2010. "Financial Crisis, Global Liquidity and Monetary Exit Strategies," Discussion Papers of DIW Berlin 995, DIW Berlin, German Institute for Economic Research.
2. Ansgar Belke & Florian Verheyen, 2012. "Doomsday for the Euro Area: Causes, Variants and Consequences of Breakup," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(1), pages 1-15, July.

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