| Abstract: |
In this paper 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 Greek exports is
estimated based on the period from 1995Q1 to 2014Q4. Looking at some of the
main export partners of Greece, the euro area, Turkey and the US, and some of
its most im-portant tradeable sectors we identify significant hysteretic
effects for a part of the Greek ex-ports. We find that Greek export activity
is characterized by “bands of inaction” with respect to changes in the real
exchange rate and calculate the further real depreciation needed to trig-ger a
spurt in Greek exports. To check for robustness we (a) estimate Greek export
equations for a limited sample excluding the recent financial crisis, (b) use
export weight instead of de-flated nominal exports as the dependent variable,
(c) employ a political uncertainty variable as a determinant of the width of
the area of weak reaction. Overall, we find that those specifica-tions which
take uncertainty into account display the best goodness of fit. In other
words: the option value of waiting dominates the real exchange rate effect on
Greek exports. |