Insignificant and Inconsequential Hysteresis: The Case of the U.S. Bilateral Trade
This paper casts doubt on the validity of the hysteresis hypothesis as an explanation of the persistent U.S. trade deficits in the 1980s. We 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. We find little support for either aspect of the hysteresis hypothesis.
|Date of creation:||May 1994|
|Publication status:||published as Review of Economics and Statistics, Vol. 75, no. 4 (1993): 606-613.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- 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 606-613, November.
- 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. Full references (including those not matched with items on IDEAS)
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