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Exchange rate hysteresis in UK imports from South Asian countries

Author

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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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    File URL: https://www.nottingham.ac.uk/credit/documents/papers/2018/18-03.pdf
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    Cited by:

    1. Agata Wierzbowska & Massimiliano Porto, 2024. "Did Brexiteers consider the business cycle of the UK trading partners?," SN Business & Economics, Springer, vol. 4(10), pages 1-18, October.
    2. Khalid Usman & Usman Bashir, 2022. "The Effects of Imports and Economic Growth in Chinese Economy: A Granger Causality Approach under VAR Framework," JRFM, MDPI, vol. 15(11), pages 1-14, November.
    3. Laura M. Werner, 2020. "Hysteresis losses in the Preisach framework," Empirical Economics, Springer, vol. 58(3), pages 1249-1278, March.
    4. 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.

    More about this item

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    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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