Elasticity of risk aversion and international trade

Abstract

This note analyzes export production in the presence of exchange rate uncertainty under mean-variance preferences. We present the elasticity of risk aversion, since this elasticity concept permits a distinct investigation of risk and expectation effects on exports. Counterintutitive results are possible, e.g. though the home currency is revaluating (devaluating) exports of the firm increase (decrease). This fact may contribute to the explanation of disturbing empirical results.Exchange rate risk, trade, elasticity of risk aversion, meanvariance model, devaluation