Relative Prices and Hysteresis: Evidence from US Manufacturing

Douglas Campbell

No w0212, Working Papers from New Economic School (NES)

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 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)
Pages: 85 pages
Date: 2017-08
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.nes.ru/files/Preprints-resh/WP212.pdf (application/pdf)

Related works:
Journal Article: Relative Prices and Hysteresis: Evidence from US Manufacturing (2020)
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:abo:neswpt:w0212

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