Relative Prices and Hysteresis: Evidence from US Manufacturing

Douglas Campbell

European Economic Review, 2020, vol. 129, issue C

Abstract: A central tenet of economics is that prices matter. A corollary is that in a world with sunk costs, historical prices can affect current economic outcomes. There exists a large theoretical literature on exchange rate hysteresis, but recent empirical treatments are scarce. To fill the gap, I employ new measures of real exchange rates (RERs) to study the impact of large, temporary movements in relative prices on the US manufacturing sector. To identify a causal impact of RER movements on manufacturing, I test whether sectors more exposed to international trade respond differently when relative prices appreciate. I also compare the US experience to Canada’s in the mid-2000s, when high oil prices and a falling US dollar led to an equally sharp appreciation of the Canadian dollar. I find that temporary RER shocks have a surprisingly persistent impact on employment, output, and productivity in relatively more open manufacturing sectors.

JEL-codes: F10 F16 L60 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Relative Prices and Hysteresis: Evidence from US Manufacturing (2017)
Working Paper: Relative Prices and Hysteresis: Evidence from US Manufacturing (2017)
Working Paper: Relative Prices and Hysteresis: Evidence from US Manufacturing
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301069

DOI: 10.1016/j.euroecorev.2020.103474

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