Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?

Ansgar Belke and Matthias Göcke ()

No 1126, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: exchange rate uncertainty; employment hysteresis; aggregation; real options (search for similar items in EconPapers)
JEL-codes: D81 F41 J23 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-04
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (4)

Published - published in: German Economic Review, 2005, 6 (2), 185-203

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Related works:
Journal Article: Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation? (2005)
Journal Article: Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation? (2005)
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