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A Macroeconomic Model with Hysteresis in Foreign Trade
Author(s) -
Gocke Matthias
Publication year - 2001
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/1467-999x.00129
Subject(s) - hysteresis , economics , exchange rate , rhombus , macro , path (computing) , preisach model of hysteresis , interest rate , macroeconomic model , econometrics , macroeconomics , magnetic hysteresis , physics , mathematics , computer science , magnetization , condensed matter physics , geometry , quantum mechanics , magnetic field , programming language
The continuous non‐linear macro‐hysteresis loop is approximated by a rhombus shaped path which therefore shows a closer affinity to the genuine concept of hysteresis than conventional techniques via difference equations. This linearized model is applied to implement foreign trade hysteresis in a standard macroeconomic simultaneous equation model demonstrating the persisting consequences of only temporary exogenous shocks on national income, interest rate and the determination of the exchange rate. Since hysteresis in foreign trade is analysed in a macroeconomic framework, the feedback of hysteresis caused by exchange rate variations on the exchange rate itself can be illustrated.