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

Author

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  • Belke, Ansgar H.

    (University of Duisburg-Essen)

  • Göcke, Matthias

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 H. & Göcke, Matthias, 2004. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," IZA Discussion Papers 1126, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1126
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rate uncertainty; employment hysteresis; aggregation; 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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