TY  - JOUR
AU  - Russ,Katheryn Niles
TI  - Exchange Rate Volatility and First-Time Entry by Multinational Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13659
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13659
L1  - http://www.nber.org/papers/w13659.pdf
N1  - Author contact info:
Katheryn Russ
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA 95616
Fax: 530/752-9382
E-Mail: knruss@ucdavis.edu
AB  - Using a model with upfront sunk costs, heterogeneous firms, and endogenous exchange rates, this paper demonstrates theoretically that volatility in fundamental variables such as the nominal interest rate that drive exchange rate volatility can simultaneously impact the entry behavior of multinational firms through a relative price channel unrelated to exchange rate risk.  It then provides an empirical illustration of the bias this endogeneity can cause when regressing measures of foreign direct investment on exchange rate volatility.  It is the first paper to provide empirical evidence that interest rate volatility may influence the behavior of multinational firms.
ER  -