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Elasticity of risk aversion and international trade

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Author Info

  • Udo Broll

    ()
    (Dresden University of Technology, Germany)

  • Jack E. Wahl

    (University of Dortmund, Germany)

  • Wing-Keung Wong

    (National University of Singapore)

Abstract

This note analyzes export production in the presence of exchange rate uncertainty under mean-variance preferences. We present the elasticity of risk aversion, since this elasticity concept permits a distinct investigation of risk and expectation effects on exports. Counterintutitive results are possible, e.g. though the home currency is revaluating (devaluating) exports of the firm increase (decrease). This fact may contribute to the explanation of disturbing empirical results.

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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0510.

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Date of creation: Nov 2005
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Handle: RePEc:nus:nusewp:wp0510

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Web page: http://www.fas.nus.edu.sg/ecs/index.html
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Keywords: Exchange rate risk; trade; elasticity of risk aversion; meanvariance model; devaluation;

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  1. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  2. Lajeri, Fatma & Nielsen, Lars Tyge, 1997. "Parametric Characterizations of Risk Aversion and Prudence," CEPR Discussion Papers 1650, C.E.P.R. Discussion Papers.
  3. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1995. "Indirect hedging of exchange rate risk," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 667-678, October.
  4. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
  5. Ormiston, Michael B & Schlee, Edward E, 2001. "Mean-Variance Preferences and Investor Behaviour," Economic Journal, Royal Economic Society, vol. 111(474), pages 849-61, October.
  6. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  7. 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.
  8. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  9. Joseph E. Gagnon, 1989. "Exchange rate variability and the level of international trade," International Finance Discussion Papers 369, Board of Governors of the Federal Reserve System (U.S.).
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