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International trade and firms' attitude towards risk

International trade and firms' attitude towards risk
International trade and firms' attitude towards risk

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.

Exchange rate risk, Export, Imported intermediate input, Risk–aversion elasticity, Two–moment decision model
0264-9993
69-73
Broll, Udo
b1378af8-abfd-40c4-a152-d75d4af12233
Mukherjee, Soumyatanu
3eb37c57-3efd-4203-a81b-de3acad02811
Broll, Udo
b1378af8-abfd-40c4-a152-d75d4af12233
Mukherjee, Soumyatanu
3eb37c57-3efd-4203-a81b-de3acad02811

Broll, Udo and Mukherjee, Soumyatanu (2017) International trade and firms' attitude towards risk. Economic Modelling, 64, 69-73. (doi:10.1016/j.econmod.2017.03.006).

Record type: Article

Abstract

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.

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More information

Accepted/In Press date: 8 March 2017
e-pub ahead of print date: 25 March 2017
Published date: 1 August 2017
Keywords: Exchange rate risk, Export, Imported intermediate input, Risk–aversion elasticity, Two–moment decision model

Identifiers

Local EPrints ID: 439045
URI: http://eprints.soton.ac.uk/id/eprint/439045
ISSN: 0264-9993
PURE UUID: 3429b949-0d7b-4a8c-bb78-41d6118ccd1b
ORCID for Soumyatanu Mukherjee: ORCID iD orcid.org/0000-0003-0674-1064

Catalogue record

Date deposited: 02 Apr 2020 16:31
Last modified: 16 Mar 2024 07:19

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Contributors

Author: Udo Broll
Author: Soumyatanu Mukherjee ORCID iD

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