Exchange Rate Hysteresis: The Effects of Overshooting and Short-Termism

9 Pages Posted: 5 May 2003

See all articles by W. David McCausland

W. David McCausland

University of Aberdeen - Business School

Abstract

The present paper addresses two questions. First, how does exchange rate overshooting affect hysteresis in trade and competitiveness? Second, how does 'short-termism' alter the magnitude of such hysteresis effects? The paper models the dynamic processes of hysteresis in trade and competitiveness in terms of the presence of discrete, asymmetric lump-sum costs of entry, in response to unanticipated foreign policy shocks. The paper produces some important new insights into the role of short run adjustment processes in understanding persistence effects in key macroeconomic indicators.

Suggested Citation

McCausland, W. David, Exchange Rate Hysteresis: The Effects of Overshooting and Short-Termism. Available at SSRN: https://ssrn.com/abstract=312218

W. David McCausland (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Old Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

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