Template-Type: ReDIF-Paper 1.0
Author-Name: Katheryn N. Russ
Author-Name-First: Katheryn N.
Author-Name-Last: Russ
Author-Name: Thomas A. Lubik
Author-Name-First: Thomas A.
Author-Name-Last: Lubik
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Entry, Multinational Firms, and Exchange Rate Volatility
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.
Length: 25
File-URL: https://repec.dss.ucdavis.edu/files/X76V4EDoWPoFJYXWjgDSwhiq/06-22.pdf
File-Format: application/pdf
Number: 157
Classification-JEL: F1, F2, F4
KeyWords: exchange rate volatility, foreign direct investment, market entry
Creation-Date: 20060813
Handle: RePEc:cda:wpaper:157