Journal article

Publication year: 2001

Pages: 38-50

Journal: International Advances in Economic Research

Volume number: 7

Issue number: 1

DOI Link: https://doi.org/10.1007/BF02296590

Publisher: Springer

Abstract: 

In a microeconomic model, a band of inaction due to hiring and firing costs is widened by option-value effects of exchange rate uncertainty. Applying an adequate aggregation approach, uncertainty leads to intervals of a weak response to exchange rate reversals—the so-called play areas—on the macro level. If changes go beyond the play area, then suddenly strong reactions (spurts) occur. The width of the play is a positive function of the degree of uncertainty. These nonlinear dynamics are captured in a simplified linearized way in a regression framework. As an empirical application, the exchange rate impacts on German employment are analyzed considering play. Since these mechanisms generally apply to investment cases where an aggregation of microeconomic real option effects under uncertainty is relevant, they may be of a general interest.

Harvard Citation style: Belke, A. and Göcke, M. (2001) Exchange Rate Uncertainty and Play Nonlinearity in Aggregate Employment, International Advances in Economic Research, 7(1), pp. 38-50. https://doi.org/10.1007/BF02296590

APA Citation style: Belke, A., & Göcke, M. (2001). Exchange Rate Uncertainty and Play Nonlinearity in Aggregate Employment. International Advances in Economic Research. 7(1), 38-50. https://doi.org/10.1007/BF02296590