Search

Hysteresis is a nonlinear and path-dependent phenomenon which is used to model the "wait-and-see" behaviour of firms in times of uncertainty. Important applications are found on the labour market and foreign trade. Reasons for hysteresis in foreign trade are sunk costs e.g. for market entry and/or exit, learning-by-doing or demand carry over effects. Recent studies have shown that hysteresis losses are proportional to the area within the loop which represents the hysteresis model in a micro- or macroframework. Taking up this idea, a first hysteresis loss indicator was developed which was able to identify hysteresis losses empirically based on the play hysteresis model. This study develops a new hysteresis loss indicator based on the Preisach procedure. The hysteresis loss indicator reports dynamic losses which occur during the adjustment process towards a new equilibrium. In the case of foreign trade, these losses occur when a firm exits an export market due to writing off sunk entry and/or exit costs. To illustrate this new welfare loss indicator, an example of German exports to Great Britain is studied. The losses found relate to the financial crisis and the Brexit decision. [ABSTRACT FROM AUTHOR]

This paper introduces a new measure to capture dynamic losses for exporting firms on markets that exhibit hysteresis on the supply side. Our indicator aims to quantify dynamic losses caused by sunk adjustment costs in case of exchange rate fluctuations. While the standard procedure in welfare analysis is to compare two equilibria, we focus on welfare effects that take place during dynamics. We analyze negative dynamic effects on producers' income that are generated due to writing off sunk adjustment costs. As an example, we investigate Italian wine exports to the United States over the period 1995–2013. After testing for hysteresis on the market, we present the indicator of hysteresis losses. It captures a continuous increase of dynamic losses during the period 2003–2008. Moreover, over-proportionately large hysteresis losses are generated in comparison to the exchange rate changes if the pain threshold of the exchange rate (ca. 1.25$/€) is passed. [ABSTRACT FROM AUTHOR]