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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) , function (biology) , expected utility hypothesis , financial economics , monetary economics , computer science , materials science , management , machine learning , evolutionary biology , composite material , biology
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.