Relative Prices and Hysteresis: Evidence from US Manufacturing
Douglas Campbell ()
No w0212, Working Papers from New Economic School (NES)
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 RER shocks 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, and that the magnitude of the shock in the early 2000s was large enough to have played a role in the onset of secular stagnation, lending support to the Bernanke Hypothesis.
Keywords: Exchange Rates; American Manufacturing; Hysteresis; Trade (search for similar items in EconPapers)
JEL-codes: F10 F16 L60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Relative Prices and Hysteresis: Evidence from US Manufacturing (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:abo:neswpt:w0212
Access Statistics for this paper
More papers in Working Papers from New Economic School (NES) Contact information at EDIRC.
Bibliographic data for series maintained by Vladimir Ivanyukhin ().