International economists typically assume that temporary real exchange rate shocks can have only temporary real effects -and no effect at all on the underlying structure of the economy. This paper shows that even in a simple "off-the-shelf" industrial organization model, this assumption is unfounded; if market-entry costs are sunk, exchange rate shocks can alter domestic market structure and thereby have lasting real effects. In other words, a sufficiently large exchange rate shock can cause hysteresis in import prices and quantities. This simple idea has strong implications for exchange rate theory .