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Title:Real Options Effects on Employment : Does Exchange Rate Uncertainty Matter for Aggregation? PDF Logo
Authors:Göcke, Matthias
Belke, Ansgar
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1126
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.
Subjects:aggregation
employment hysteresis
exchange rate uncertainty
real options
JEL:D81
F41
J23
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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