A test for strong hysteresis in international trade
The article suggests a new test for strong hysteresis in international trade. The variables that capture the effects of hysteresis are based on the model of Dixit (1989) with calibrations using a state-space model to determine the parameters for each point in time. These variables are then applied to a cointegration test with breaks, where it is possible to verify whether the hysteresis effect is essential in determining the long-term equilibrium.
|Date of creation:||26 Aug 2009|
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- Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc.
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