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A test for strong hysteresis in international trade

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  • Teles, Vladimir Kuhl
  • Denadai, Ricardo Sávio

Abstract

The article suggests a new test for strong hysteresis in international trade. The variables that capture the effects of hysteresis are based on the model of Dixit (1989) with calibrations using a state-space model to determine the parameters for each point in time. These variables are then applied to a cointegration test with breaks, where it is possible to verify whether the hysteresis effect is essential in determining the long-term equilibrium.

Suggested Citation

  • Teles, Vladimir Kuhl & Denadai, Ricardo Sávio, 2009. "A test for strong hysteresis in international trade," Textos para discussão 195, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    • Handle: RePEc:fgv:eesptd:195
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    References listed on IDEAS

    as
    1. Richard Baldwin, 1989. "Sunk-Cost Hysteresis," NBER Working Papers 2911, National Bureau of Economic Research, Inc.
    2. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 635-654.
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