Risk preferences estimation of exporting firms under exchange rate uncertainty

Udo Broll, Soumyatanu Mukherjee and Rudra Sensarma

Scottish Journal of Political Economy, 2020, vol. 67, issue 1, 126-136

Abstract: This note empirically analyses how exchange rate fluctuations affects firms’ optimal production and exporting decisions. A firm’s elasticity of risk aversion determines the direction of the impact of exchange rate risk on exports. Based on a flexible utility function that incorporates all possible risk preferences, a unique structurally estimable equation is derived. Quantile regression method is used to estimate this equation and compute the risk aversion elasticities for a panel of Indian firms. This approach allows us to demonstrate how characteristics of exporters at the intensive margin varies with the level of elasticities across the conditional exchange rate distribution.

Date: 2020
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https://doi.org/10.1111/sjpe.12226

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