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Entry, Multinational Firms, and Exchange Rate Volatility

Author

Listed:
  • Katheryn N. Russ
  • Thomas A. Lubik

    (Department of Economics, University of California Davis)

Abstract

Recent discussions of exchange rate determination have emphasized the possible roleof foreign direct investment in influencing exchange rate behavior. Yet, there are fewexisting models of multinational enterprises (MNEs) and endogenous exchange rates.This paper demonstrates that the entry decisions of MNEs can influence the volatilityof the real exchange rate in countries were there are significant costs involved in maintainingproduction facilities, even when prices are perfectly flexible. For empiricallyplausible parameters, MNE activity can make the exchange rate much more volatilethan relative consumption.

Suggested Citation

  • Katheryn N. Russ & Thomas A. Lubik, 2006. "Entry, Multinational Firms, and Exchange Rate Volatility," Working Papers 157, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:157
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    File URL: https://repec.dss.ucdavis.edu/files/X76V4EDoWPoFJYXWjgDSwhiq/06-22.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Mauro Ghinamo & Paolo Panteghini & Federico Revelli, 2010. "FDI determination and corporate tax competition in a volatile world," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 532-555, October.

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    More about this item

    Keywords

    exchange rate volatility; foreign direct investment; market entry;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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