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Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?

Author

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  • Belke Ansgar

    (Universität Hohenheim, Stuttgart and IZA,Bonn, Germany)

  • Göcke Matthias

    (Universität Münster,Münster, Germany)

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.

Suggested Citation

  • Belke Ansgar & Göcke Matthias, 2005. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," German Economic Review, De Gruyter, vol. 6(2), pages 185-203, May.
    • Handle: RePEc:bpj:germec:v:6:y:2005:i:2:p:185-203
    DOI: 10.1111/j.1465-6485.2005.00126.x
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    More about this item

    Keywords

    Aggregation; employment hysteresis; exchange rate uncertainty; real options;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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