DP177 Sterling Misalignment and British Trade Performance
|Author(s):||Charles R Bean|
|Publication Date:||May 1987|
|Keyword(s):||Exchange Rates, Exports, Hysteresis, Monetary Policy, Oil Exports, United Kingdom|
|JEL(s):||122, 311, 421, 431|
|Programme Areas:||International Macroeconomics, International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=177|
In the first part of this paper I use a small macroeconomic model to examine the causes of the appreciation of sterling during 1979-81. Oil takes about half of the blame. Contractionary monetary policies alone do not seem sufficient to explain the rest, but when coupled with adverse supply-side developments they seem capable of explaining both the appreciation and the associated increase in unemployment. In the second part of the paper I examine the possibility that temporary fluctuations in the real exchange rate may have a permanent effect on British export performance. Using data from 1900 to the present I find evidence that is consistent with "hysteresis" effects on both the demand and supply side of the export market.