Effects of Changes in Exchange Rate Volatility on Short-run Equilibrium in International Oligopoly

Tetsuya Shinkai (), Takao Ohkawa (), Makoto Okamura () and Ryoma Kitamura ()
Additional contact information
Takao Ohkawa: Faculty of Economics,Ritsumeikan University
Makoto Okamura: Faculty of Economics,Gakushuin University
Ryoma Kitamura: Faculty of Economics,Otemon Gakuin University

No 215, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper investigates exchange rate volatility in an international oligopolistic market in a foreign country that accepts affiliate firms through foreign direct investment. The affiliate firms must procure intermediate products from their overseas parent firms. We derive a Cournot equilibrium of a market in which affiliate firms compete with local firms under foreign exchange rate uncertainty. In equilibrium, we show that affiliates aggressively expand output and the ex-post expected profits and ex-ante certainty equivalence of the affiliates’ profits increase / decrease with a rise in exchange rate risk when the relative risk aversion coefficient is small / large.

Keywords: risk aversion; exchange rate volatility; short-run equilibria; and international oligopoly (search for similar items in EconPapers)
JEL-codes: G32 L12 L13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-05
New Economics Papers: this item is included in nep-com, nep-int, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://192.218.163.163/RePEc/pdf/kgdp215.pdf First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:215

Access Statistics for this paper

More papers in Discussion Paper Series from School of Economics, Kwansei Gakuin University Contact information at EDIRC.
Bibliographic data for series maintained by Toshihiro Okada ().