The Hysteretic Effects on the Real Exchange Rates

Dionysios Chionis

International Review of Applied Economics, 2002, vol. 16, issue 4, 451-463

Abstract: In this paper we investigate the dynamics developed from the exchange rate relative price relationship using a hysteresis framework. The rationale for such hysteretic effects is in terms of firms' unresponsiveness to the exchange rate changes due to pricing to market-type arguments.The empirical support of these ideas is derived by applying a linear approximation of the hysteretic effects.We conclude that the hysteretic effects are a source of non-linearity, strongly affecting the long-run relationship of exchange rate and prices.

Date: 2002
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DOI: 10.1080/02692170210161174

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