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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
Date of revision:
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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