Risk preferences estimation of exporting firms under exchange rate uncertainty | Zendy

Broll Udo | Zendy; Mukherjee Soumyatanu | Zendy; Sensarma Rudra | Zendy

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Risk preferences estimation of exporting firms under exchange rate uncertainty

Author(s) -

Broll Udo,

Mukherjee Soumyatanu,

Sensarma Rudra

Publication year - 2020

Publication title -

scottish journal of political economy

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.4

H-Index - 46

eISSN - 1467-9485

pISSN - 0036-9292

DOI - 10.1111/sjpe.12226

Subject(s) - econometrics , economics , exchange rate , quantile regression , risk aversion (psychology) , estimation , margin (machine learning) , quantile , elasticity (physics) , expected utility hypothesis , financial economics , monetary economics , computer science , materials science , management , machine learning , composite material

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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