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Labour Demand and Exchange Rate Volatility

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The purpose of this paper is to assess under what conditions ex- change rate volatility exerts a positive effect on a firm's labour de- mand. As the exchange rate volatility increases, so does the value of the export option provided the firm under study is exible. Flexibility is important because it gives the firm option value. Higher volatility increases the potential gains from trade and may increase the demand for labour. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on labour demand and international trade.

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Udo Broll, Sabine Hansen

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Adapt according to the presented license agreement and reference the original author.