Journal article

Publication year: 2015

Pages: 24-53

Journal: Review of Economic Analysis

Volume number: 7

Issue number: 1

DOI Link: https://doi.org/10.15353/rea.v7i1.1484

Publisher: International Centre for Economic Analysis

Abstract: 

This paper surveys export hysteresis on a micro (firm) level and an aggregate level if sunk adjustment costs matter for export market entry and exit decisions. Furthermore, the impacts of option-to-wait effects due to uncertainty on the aggregation procedure are illustrated. It then illustrates the so-called play-algorithm which allows an estimation of the aggregate/macro hysteresis loop taking into account the variable option value effects resulting from on changing volatility of exchange rates. The play regression model is then applied to empirical export equations (Euro Area member countries to the United States). We do not confine ourselves to the aggregate macro level but also take a sectoral/branch perspective. Analyzing one of the largest export destinations outside the Eurozone, the US, to which 12% of total EA exports were directed in 2012, we find hysteretic effects in many cases of EA member countries’ exports. However, not every increase or decrease of the exchange rate will, automatically, lead to positive or negative reactions of the volume of exports. But a large appreciation of the euro means passing the play-area (i.e. a kind of 'pain-threshold') and results in a strong reaction of exports, et vice versa.

Harvard Citation style: Belke, A., Göcke, M. and Werner, L. (2015) Exchange Rate Volatility and other Determinants of Hysteresis in Exports - Empirical Evidence for the Euro Area, Review of Economic Analysis, 7(1), pp. 24-53. https://doi.org/10.15353/rea.v7i1.1484

APA Citation style: Belke, A., Göcke, M., & Werner, L. (2015). Exchange Rate Volatility and other Determinants of Hysteresis in Exports - Empirical Evidence for the Euro Area. Review of Economic Analysis. 7(1), 24-53. https://doi.org/10.15353/rea.v7i1.1484