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Labour Demand and Exchange Rate Volatility

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Author Info
Udo Broll ()
Sabine Hansen

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Abstract

The purpose of this paper is to assess under what conditions exchange rate volatility exerts a positive effect on a firm’s labour demand. As the exchange rate volatility increases, so does the value of the export option provided the firm under study is flexible. Flexibility is important because it gives the firm option value. Higher volatility increases the potential gains from trade and may increase the demand for labour. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on labour demand and international trade.

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File URL: http://wwwuser.gwdg.de/~lstohr/cege/Diskussionspapiere/28_Broll_Hansen.pdf
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Publisher Info
Paper provided by cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany). in its series cege – Center for European, Governance and Economic Development Research Discussion Papers with number 28.

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Length: 20
Date of creation: 09 Jun 2004
Date of revision:
Handle: RePEc:got:cegedp:28

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Web page: http://www.cege.uni-goettingen.de
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Related research
Keywords: Labour demand; Exchange rate risk; Risk aversion; Flexibility; Real option; International trade;

Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  2. Gagnon, Joseph E., 1993. "Exchange rate variability and the level of international trade," Journal of International Economics, Elsevier, vol. 34(3-4), pages 269-287, May. [Downloadable!] (restricted)
    Other versions:
  3. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring. [Downloadable!] (restricted)
  4. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March. [Downloadable!] (restricted)
  5. Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February. [Downloadable!] (restricted)
  6. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June. [Downloadable!] (restricted)
  7. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Blackwell Publishing, vol. 13(1), pages 71-106, February. [Downloadable!] (restricted)
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