Entry, Multinational Firms, and Exchange Rate Volatility
Recent discussions of exchange rate determination have emphasized the possible role of foreign direct investment in influencing exchange rate behavior. Yet, there are few existing models of multinational enterprises (MNEs) and endogenous exchange rates. This paper demonstrates that the entry decisions of MNEs can influence the volatility of the real exchange rate in countries were there are significant costs involved in maintaining production facilities, even when prices are perfectly flexible. For empirically plausible parameters, MNE activity can make the exchange rate much more volatile than relative consumption.
|Date of creation:||14 Aug 2006|
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- Naknoi, Kanda, 2008.
"Real exchange rate fluctuations, endogenous tradability and exchange rate regimes,"
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 645-663, April.
- Kanda Naknoi, 2005. "Real exchange rate fluctuations, endogenous tradability and exchange rate regime," International Finance 0509004, EconWPA, revised 07 Nov 2005.
- Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2004. "The US Current Account Deficit and Economic Development: Collateral for a Total Return Swap," NBER Working Papers 10727, National Bureau of Economic Research, Inc.
- Russ, Katheryn Niles, 2007. "The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms," Journal of International Economics, Elsevier, vol. 71(2), pages 344-372, April.
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