AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 215 – Economics

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AAWE Working Paper No. 215 – Economics

􏰀Identifying Hysteresis Non-linearities in Trade: Evidence from European Wine Exports to the US

Laura M. Werner

Abstract

It is obvious that exchange rates in􏰆uence exports since they add a 􏰆uctuating component to the costs or rather to the price in the destination country and therefore in􏰆uence the international competitive ability. Whether this in- 􏰆uence on exports is of a special non-linear path dependence, called hysteresis, is investigated in this paper. To identify hysteresis, three methods are pre- sented and compared. First, the spurt method developed by Belke and Göcke [2001], second, the Preisach addition method which was used by Hallett and Piscitelli [2002] and third, the Preisach replacement technique which can be found in de Prince and Kannebley Junior [2013]. Both Preisach approaches use an algorithm provided by Piscitelli et al. [2000] to derive the so called Preisach variable from the exchange rate time series. After 􏰅nding hysteresis in export values the question arises if the hysteresis descends from hysteresis in prices or quantities, see Göcke and Werner [2015]. Therefore, the study analyses values, quantities and prices, i. e. unit values, of European wine exports to the USA. As the entry into the US market requires sunk costs, for example for dealing with the extensive regulations, see e. g. Beliveau and Rouse [2010], FTA [2015], the requirements for the appearance of hysteresis are conformed. Indeed, the esti- mations revealed hysteresis for values in case of Italy and Spain and for prices in case of Italy and France.

This article was written by Karl Storchmann

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