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Trade-volume hysteresis: an investigation using aggregate data

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  • I. Agur

Abstract

Sunk costs of entry create a wedge between the real exchange rate for which a foreign exporter enters the domestic market, and that for which he exits. On the macroeconomic level, heterogeneous cost structures make the number of entry and exit thresholds approach a continuum: any movement of the real exchange rate beyond its historical peak triggers some entry or exit. A sufficiently large appreciation followed by an equivalent depreciation (a 'cycle') could hysteretically affect the trade volume, because some exporters enter and stay. This paper investigates whether trade-volume hysteresis indeed occurs during such cycles, by testing for structural breaks in the constant term and the real exchange rate elasticity of the import volume in a standard import-volume specification. Binomial tests indicate that constant-term breaks have the sign predicted by hysteresis theory significantly more than 50% of the time. Breaks in the real exchange rate elasticity, on the other hand, have the 'reverse' sign in significantly more than half of the cases.

Suggested Citation

  • I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:740
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    File URL: https://www.dnb.nl/binaries/wo0740_tcm46-146026.pdf
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    References listed on IDEAS

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    1. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
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    Citations

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    Cited by:

    1. Belke, Ansgar & Goecke, Matthias & Guenther, Martin, 2009. "When Does It Hurt? The Exchange Rate ""Pain Threshold"" for German Exports," Ruhr Economic Papers 148, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Ansgar Belke & Matthias Goecke & Martin Guenther, 2009. "When Does It Hurt? The Exchange Rate "Pain Threshold" for German Exports," Ruhr Economic Papers 0148, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Ansgar Belke & Dominik Kronen, 2016. "Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area, the US and Turkey: sectoral evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(2), pages 349-390, May.
    4. repec:zbw:rwirep:0327 is not listed on IDEAS
    5. Belke, Ansgar & Kronen, Dominik, 2017. "Exchange rate bands of inaction and hysteresis in EU exports to the global economy: The role of uncertainty," Ruhr Economic Papers 695, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. 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.
    7. Ansgar Belke & Matthias Göcke & Martin Günther, 2013. "Exchange Rate Bands Of Inaction And Play-Hysteresis In German Exports—Sectoral Evidence For Some Oecd Destinations," Metroeconomica, Wiley Blackwell, vol. 64(1), pages 152-179, February.
    8. repec:zbw:rwirep:0148 is not listed on IDEAS
    9. Verheyen, Florian, 2013. "Exchange rate nonlinearities in EMU exports to the US," Economic Modelling, Elsevier, vol. 32(C), pages 66-76.

    More about this item

    Keywords

    Hysteresis; Trade volumes; Real exchange rate cycles; Recursive coefficient estimations;

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • F19 - International Economics - - Trade - - - Other
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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