International trade and firms' attitude towards risk
Udo Broll and
Soumyatanu Mukherjee ()
Economic Modelling, 2017, vol. 64, issue C, 69-73
This paper examines the optimal production and trade decisions of the domestic firms facing uncertainties owing to the exchange rate volatility under mean-variance preferences. The impact of uncertain exchange rate fluctuations on trade is evaluated in a partial equilibrium framework, using the concept of risk-aversion elasticities. These elasticities measure how sensitive the firms are towards substituting between return and risk at the margin, with respect to changes in the distribution of the spot exchange rate. This simplest possible analytical framework is useful for explicit empirical estimation of risk-aversion elasticities in the literature of international economics.
Keywords: Two–moment decision model; Export; Imported intermediate input; Exchange rate risk; Risk–aversion elasticity (search for similar items in EconPapers)
JEL-codes: D21 D81 F10 F31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:64:y:2017:i:c:p:69-73
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