Risk preferences estimation of exporting firms under exchange rate uncertainty |
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Authors: | Udo Broll Soumyatanu Mukherjee Rudra Sensarma |
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Institution: | 1. Technische Universität Dresden;2. Indian Institute of Technology Kharagpur
University of Nottingham;3. Indian Institute of Management (IIM) |
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Abstract: | This note empirically analyses how exchange rate fluctuations affects firms’ optimal production and exporting decisions. A firm’s elasticity of risk aversion determines the direction of the impact of exchange rate risk on exports. Based on a flexible utility function that incorporates all possible risk preferences, a unique structurally estimable equation is derived. Quantile regression method is used to estimate this equation and compute the risk aversion elasticities for a panel of Indian firms. This approach allows us to demonstrate how characteristics of exporters at the intensive margin varies with the level of elasticities across the conditional exchange rate distribution. |
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