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Elasticity of risk aversion and international trade


  • Broll, Udo
  • Wahl, Jack E.
  • Wong, Wing-Keung


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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  • Broll, Udo & Wahl, Jack E. & Wong, Wing-Keung, 2006. "Elasticity of risk aversion and international trade," Economics Letters, Elsevier, vol. 92(1), pages 126-130, July.
  • Handle: RePEc:eee:ecolet:v:92:y:2006:i:1:p:126-130

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    References listed on IDEAS

    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. 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.
    3. Lars Tyge Nielsen & Fatma Lajeri, 2000. "Parametric characterizations of risk aversion and prudence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 469-476.
    4. 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.
    5. 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.
    6. Ormiston, Michael B & Schlee, Edward E, 2001. "Mean-Variance Preferences and Investor Behaviour," Economic Journal, Royal Economic Society, vol. 111(474), pages 849-861, October.
    7. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    8. 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.
    9. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-995, December.
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange


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