Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?
Ansgar Hubertus Belke
University of Duisburg-Essen - Department of Economics; Institute for the Study of Labor (IZA)
University of Muenster - Faculty of Economics
IZA Discussion Paper No. 1126
In a baseline micro model a band of inaction due to hiring- and firing-costs is widened by option value effects of exchange rate uncertainty. Based on this micro foundation an aggregation approach is presented. Under uncertainty, intervals of weak response to exchange rate reversals (called 'play' areas) are introduced on the macro-level. 'Spurts' in new employment or firing may occur after an initially weak response. Since these mechanisms may apply to other investment cases where the aggregation of microeconomic real options effects under uncertainty are relevant, they may even be of a more general interest.
Number of Pages in PDF File: 25
Keywords: Aggregation, employment hysteresis, exchange rate uncertainty, real options
JEL Classification: J23, F41, D81working papers series
Date posted: May 11, 2004
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