Chapter 1 of this thesis derives the long run general equilibrium of a home economy in a two-country overlapping generations model where agents\u27 participation in production and the exchange rate are endogenous. We find that the presence of multiple equilibria is crucial for the existence of hysteresis defined as a change in the market structure of import or export markets, e.g. a change in the number of incumbent producers. With the presence of a positive network externality, the model will guarantee the possibility of hysteresis, i.e. multiple equilibria. Moreover, welfare is unambiguously increasing in the number of producers.;Chapter 2 applies the model developed in Chapter 1 to study exchange rate pass-through issues under different exogenous shocks. I addition, we discuss the hysteresis effects of temporary tariff protection. Exchange rate pass-through will generally be complete (incomplete) with (without) the entry or exit of foreign firms. Numerical examples are constructed to illustrate the predictions of the model. These examples demonstrate how hysteresis emerges and the related equilibrium responses of export prices, and the exchange rate.;Chapter 3 extends Chapter 1 by introducing the government into the model. We also study the impacts of a monetary shock to the economy. Similarly, the monetary shock (a shock to monetary growth rate) can cause hysteresis in this economy. We also construct numerical examples to compare the case of a monetary shock with the case of a real shock.;Chapter 4 contains an empirical test of Baldwin\u27s hypothesis of hysteresis by using data on Canadian exports. We estimate the markup coefficient for the exports of each of five industries and test the hypothesis that hysteresis is present by examining the stability of these markup coefficients. Since we cannot reject the null hypothesis that the markup coefficient is stable for each industry, we find no evidence of hysteresis related to the exports of these Canadian industries
