Exchange Rate Hysteresis: the effects of overshooting and short-termism

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Abstract

The present paper addresses two questions. First, how does exchange rate overshooting affect hysteresis in trade and competitiveness? Second, how does 'short-termism' alter the magnitude of such hysteresis effects? The paper models the dynamic processes of hysteresis in trade and competitiveness in terms of the presence of discrete, asymmetric lump-sum costs of entry, in response to unanticipated foreign policy shocks. The paper produces some important new insights into the role of short ran adjustment processes in understanding persistence effects in key macroeconomic indicators.

Original languageEnglish
Pages (from-to)60-67
Number of pages7
JournalThe Economic Record
Volume78
Issue number1
DOIs
Publication statusPublished - Mar 2002

Keywords

  • POLICY

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