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Micro and Macro Hysteresis in Employment under Exchange Rate Uncertainty

  • Matthias G�cke

    ()

    (University of Munster)

  • Ansgar Belke

    ()

    (University of Bochum)

A baseline micro model leading to employment hysteresis due to hiring- and firing- costs is proposed. A band of inaction accounting for a "weaker" relationship between employment and its determinants is widened by option value effects of exchange rate uncertainty. Based on this micro foundation an aggregation approach under certainty is developed. While at the micro-level exchange rate thresholds have to be passed, at the macro level small changes yield persistent effects. However, under uncertainty, intervals of weak response to exchange rate reversals are introduced on the macro-level. "Spurts" in new employment or firing may occur after an initially weak response.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 722.

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Date of creation: 01 Mar 1999
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Handle: RePEc:sce:scecf9:722
Contact details of provider: Postal: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
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Web page: http://fmwww.bc.edu/CEF99/

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  1. Guiso, L. & Parigi, G., 1996. "Investment and Demand Uncertainty," Papers 289, Banca Italia - Servizio di Studi.
  2. André Sapir & Khalid Sekkat, 1990. "Exchange rate volatility and international trade: the effects of the European monetary system," ULB Institutional Repository 2013/8228, ULB -- Universite Libre de Bruxelles.
  3. Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
  4. Parsley, David C & Wei, Shang-Jin, 1993. "Insignificant and Inconsequential Hysteresis: The Case of U.S. Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 606-13, November.
  5. Amable, Bruno & Henry, Jerome & Lordon, Frederic & Topol, Richard, 1994. "Strong hysteresis versus zero-root dynamics," Economics Letters, Elsevier, vol. 44(1-2), pages 43-47.
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  10. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  11. Cross, Rod, 1994. "The Macroeconomic Consequences of Discontinuous Adjustment: Selective Memory of Non-dominated Extrema," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 212-21, May.
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  15. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
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  17. Rudiger Dornbusch, 1987. "Open Economy Macroeconomics: New Directions," NBER Working Papers 2372, National Bureau of Economic Research, Inc.
  18. Amable, Bruno & Henry J & Lordon F & Topol R, 1992. "Hysteresis : what it is and what it is not ?," CEPREMAP Working Papers (Couverture Orange) 9216, CEPREMAP.
  19. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  20. Bruno Amable & Jérôme Henry & Frédéric Lordon & Richard Topol, 1993. "Unit Root in the Wage-Price Spiral Is Not Hysteresis in Unemployment," Journal of Economic Studies, Emerald Group Publishing, vol. 20(1/2), pages 123-135, January.
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