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Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates

  • Yu-Fu Chen

    ()

  • Michael Funke

    ()

The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we follow the real options approach, which allows us to investigate the value of a firm of waiting to adjust labour when the firm´s revenues in domestic currency are stochastic and adjustment costs are sunk. The simulations reject the null hypothesis that all exchange rate regimes obey common emploment adjustment thresholds.

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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 20202.

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Date of creation: Mar 2002
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Handle: RePEc:ham:qmwops:20202
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  16. Hjalmar Böhm & Michael Funke, 2001. "Does the Nominal Exchange Rate Regime Matter for Investment?," CESifo Working Paper Series 578, CESifo Group Munich.
  17. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  18. Rose, Colin, 2000. "The I-r Hump: Irreversible Investment under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 626-36, July.
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