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

31 Pages Posted: 6 Nov 2002  

Michael Funke

University of Hamburg - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Yu-Fu Chen

University of Dundee - Department of Economic Studies

Date Written: September 2002

Abstract

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 to 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 employment adjustment thresholds.

Keywords: Real Option Theory, Uncertainty, Working Time, Employment, Labour Demand, Exchange Rates

JEL Classification: D81, E24, J23, F31

Suggested Citation

Funke, Michael and Chen, Yu-Fu, Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates (September 2002). CESifo Working Paper Series No. 779; HWWA Discussion Paper No. 196. Available at SSRN: https://ssrn.com/abstract=329480

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yu-Fu Chen

University of Dundee - Department of Economic Studies ( email )

Dundee DD1 4HN, Scotland
United Kingdom
+44 1382 344 383 (Phone)
+44 1382 344 691 (Fax)

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