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Exchange rate hysteresis in UK imports from South Asian countries

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  • Nusrate Aziz
  • Ahmad H Ahmad

Abstract

We investigate and find evidence for the hysteresis hypothesis in UK imports from South Asian countries, using a monthly sample data that covers 1999 to 2012. This paper finds evidence of the asymmetric effect of exchange rate volatility that ‘large’ depreciations significantly reduce UK imports from Bangladesh; however, ‘large’ appreciations do not increase the imports significantly. We also find a partial support for exchange rate hysteresis in UK imports from India, Pakistan and Sri Lanka. We find that hysteresis can be both country- and commodity-dependent, which is largely consistent with previous empirical studies. Theoretical literature suggests that hysteresis occurs due to the presence of sunk costs, but we find that sunk costs alone do not explain the level of hysteresis.

Suggested Citation

  • Nusrate Aziz & Ahmad H Ahmad, 2018. "Exchange rate hysteresis in UK imports from South Asian countries," Discussion Papers 2018-03, University of Nottingham, CREDIT.
    • Handle: RePEc:not:notcre:18/03
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    Cited by:

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    2. Iulia Iuga, 2020. "The Influence of The Exchange Rate on Imports – Romanian Case Study," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 975-982, August.
    3. Laura M. Werner, 2020. "Hysteresis losses in the Preisach framework," Empirical Economics, Springer, vol. 58(3), pages 1249-1278, March.

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    More about this item

    Keywords

    inverse relationship; agriculture; Tanzania;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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