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Exchange Rate Bands of Inaction and Play-Hysteresis in Greek exports to the Euro Area, the US and Turkey – Sectoral Evidence

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  • Ansgar Belke
  • Dominik Kronen

Abstract

In this paper a non-linear model is applied, where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction, which we call “play” area – analogous to mechanical play. We implement an algorithm describing path-dependent play-hysteresis into a regression framework. The hysteretic impact of real exchange rates on Greek exports is estimated based on the period from 1995Q1 to 2014Q4. Looking at some of the main export partners of Greece, the euro area, Turkey and the US, and some of its most im-portant tradeable sectors we identify significant hysteretic effects for a part of the Greek ex-ports. We find that Greek export activity is characterized by “bands of inaction” with respect to changes in the real exchange rate and calculate the further real depreciation needed to trig-ger a spurt in Greek exports. To check for robustness we (a) estimate Greek export equations for a limited sample excluding the recent financial crisis, (b) use export weight instead of de-flated nominal exports as the dependent variable, (c) employ a political uncertainty variable as a determinant of the width of the area of weak reaction. Overall, we find that those specifica-tions which take uncertainty into account display the best goodness of fit. In other words: the option value of waiting dominates the real exchange rate effect on Greek exports.

Suggested Citation

  • Ansgar Belke & Dominik Kronen, 2015. "Exchange Rate Bands of Inaction and Play-Hysteresis in Greek exports to the Euro Area, the US and Turkey – Sectoral Evidence," ROME Working Papers 201505, ROME Network.
  • Handle: RePEc:rmn:wpaper:201505
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    References listed on IDEAS

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    1. repec:kap:iecepo:v:15:y:2018:i:3:d:10.1007_s10368-017-0380-8 is not listed on IDEAS
    2. Rangan Gupta & Charl Jooste, 2018. "Unconventional monetary policy shocks in OECD countries: how important is the extent of policy uncertainty?," International Economics and Economic Policy, Springer, vol. 15(3), pages 683-703, July.
    3. Fedoseeva, Svetlana & Zeidan, Rodrigo, 2016. "A dead-end tunnel or the light at the end of it: The role of BRICs in European exports," Economic Modelling, Elsevier, vol. 59(C), pages 237-248.

    More about this item

    Keywords

    real depreciation; Greece; play-hysteresis; modelling techniques; switching/spline regression; export demand;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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