Hysteresis Effects in Economics Different Methods for Describing Economic Path-Dependence

Abstract

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British-European Trade Relations and Brexit: An Empirical Analysis of the Impact of Economic and Financial Uncertainty on Exports

“…On the microeconomic level, this leads into areas where companies do not react to exchange rate changes, which is referred to as a "band of inaction" (Belke et al 2014). The underlying argumentation is that a company that is not active on the export market initially has to cover market entry costs.…”

“…Shifting to the macroeconomic perspective, the aggregation of individual companies means-as is the case in the microeconomic perspective-that areas form in which exchange rates have only a minor effect on exports, which are referred to as "play areas" (Belke et al 2013(Belke et al , 2014. These areas become relevant when the exchange rate shows only minimal fluctuations.…”

Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area, the US and Turkey: sectoral evidence

“…Examples of sunk costs of entering export markets are those of information gathering on the new market (costs for market research), setting up distribution and service networks, bearing the costs of establishing a brand name through advertising, and bringing the foreign product into conformity with domestic health regulations, etc. These costs are firm-specific and cannot be resold on exiting the market, at least in terms of their total value, being therefore regarded as (partially) irreversible investments (Belke, Göcke and Werner, 2014, Kannebley 2008, Roberts and Tybout 1997. The literature on, for instance, German firm export decisions has found considerable persistence in export status over time (Bernard and Wagner, 2001).…”

“…steering a car) the play area, defining the area of weak reactions, is shifted with the earlier values of the forcing variable (exchange rate): Every time the direction of the movement of the forcing variable changes it starts with traversing a play area. Then, after the whole play area is passed, a spurt reaction can be observed, if the forcing variable continues its course in the same direction (see Belke, Göcke and Werner, 2014).…”

Play Hysteresis in Supply or in Demand as Part of a Market Model

“…3 Thus, transient disturbances on the production or demand level can have permanent effects on economic equilibria, which is the constituting characteristic of economic hysteresis. For an overview of hysteresis in economics (which is beyond the scope of this paper), we refer to the survey articles of Cross (1993), Cross et al (2009), Göcke (2002) and Belke et al (2014).…”