EXCHANGE RATE BANDS OF INACTION AND PLAY‐HYSTERESIS IN GERMAN EXPORTS—SECTORAL EVIDENCE FOR SOME OECD DESTINATIONS

A non‐linear model is applied, where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction, which we call ‘play’ area—analogous to mechanical play. We implement an algorithm describing path‐dependent play‐hysteresis into a regression framework. The hysteretic impact of real exchange rates on G erman exports is estimated based on the period from 1995 Q 1 to 2010 Q 3. Looking at some of the main export partners of G ermany outside the euro area and some of the most important tradeable sectors we find significant hysteretic effects for a part of the G erman exports.