Relative Prices and Hysteresis: Evidence from US Manufacturing

Douglas Campbell

No w0263, 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 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.

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: 101 pages
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Downloads: (external link)
https://www.nes.ru/files/Preprints-resh/WP263.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 (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:abo:neswpt:w0263

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