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Risk preferences estimation of exporting firms under exchange rate uncertainty

Risk preferences estimation of exporting firms under exchange rate uncertainty
Risk preferences estimation of exporting firms under exchange rate uncertainty

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.

0036-9292
126-136
Broll, Udo
b1378af8-abfd-40c4-a152-d75d4af12233
Mukherjee, Soumyatanu
3eb37c57-3efd-4203-a81b-de3acad02811
Sensarma, Rudra
397dacd8-a14d-4bd1-b543-8dd9f26acd2d
Broll, Udo
b1378af8-abfd-40c4-a152-d75d4af12233
Mukherjee, Soumyatanu
3eb37c57-3efd-4203-a81b-de3acad02811
Sensarma, Rudra
397dacd8-a14d-4bd1-b543-8dd9f26acd2d

Broll, Udo, Mukherjee, Soumyatanu and Sensarma, Rudra (2020) Risk preferences estimation of exporting firms under exchange rate uncertainty. Scottish Journal of Political Economy, 67 (1), 126-136. (doi:10.1111/sjpe.12226).

Record type: Article

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.

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More information

Accepted/In Press date: 1 April 2016
e-pub ahead of print date: 15 July 2019
Published date: 1 February 2020

Identifiers

Local EPrints ID: 439283
URI: http://eprints.soton.ac.uk/id/eprint/439283
ISSN: 0036-9292
PURE UUID: e04d1096-35fc-4171-91de-fb09bed656db
ORCID for Soumyatanu Mukherjee: ORCID iD orcid.org/0000-0003-0674-1064

Catalogue record

Date deposited: 07 Apr 2020 16:36
Last modified: 28 Apr 2022 02:30

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Contributors

Author: Udo Broll
Author: Rudra Sensarma

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