See, for example, Markowitz (1952), Debreu (1959), Sharpe (1964), Lintner (1965), Mossin (1966) and Arrow (1971).
The empirical evidence here is quite strong. See, for example, Hodrick and Srivastava (1987), Cumby and Obstfeld (1981, 1984), Hsieh (1984), Dooley and Shafer (1983), Hansen and Hodrick (1980, 1983), Bilson (1981) and Frankel (1980).
For a more rigorous discussion of the Newbery-Stiglitz framework in this context, see de Grauwe (1988) and Coes (1981).
For more on measuring capacity utilization, see Lim (1976), Artus (1977) and Christiano (1981).
Cuddy and Della Valle (1978) proposed a measure to de-trend time series data, which was subsequently refined by Duggan (1970). On this matter, see also Della Valle (1979) and Brown (1979). The method essentially involves 'correcting' the conventional coefficient of variation by a factor reflecting the goodness of fit of past observations to a time trend. Tsui (1987) shows that Duggan's measure of variability will always be less than the conventional coefficient of variation.
See, for example, Kenen (1979), Gupta (1980), Brodsky et al. (1981), Helleiner (1981) and Kenen and Rodrick (1984, 1986).
Some studies like IMF (1984) and Gotur (1985) have found a 'perverse' sign on the exchange rate variability measure, meaning it is positive and significant. In the Newbery-Stiglitz framework, of course, this is not perverse, but rather evidence of their income effect overriding their substitution effect - difficult to conceive as this may be.
Cushman (1986) has found significant 'third country' effects on US exports to its six largest partners. That is, an increase in, say, the variability of the dollar-DM rate will shift exports away from Germany and towards, say, the UK. This is consistent with Thursby and Thursby (1987), who find that exchange rate variability affects not just the volume but also the pattern of world trade.
This is what de Grauwe (1988:69) calls the 'political economy of exchange rate variability'.
Abrams, R. K. (1980a) 'International Trade Flows under Flexible Exchange Rates, Federal Reserve Bank of Kansas City', Economic Review 65(3): 3-10.
Abrams, R. K. (1980b) 'Exchange Rate Volatility and Bilateral Trade Flows', Draft, Federal Reserve Bank of Kansas City.
Aizenman, J. (1992) 'Exchange Rate Flexibility, Volatility, and the Patterns of Domestic and Foreign Direct Investment', International Monetary Fund Working Paper, No. WP/92/20.
Akhtar, M. A. and Spence Hilton, R. (1984) 'Exchange Rate Uncertainty and International Trade: Some Conceptual Issues and New Estimates for Germany and the United States', Federal Reserve Bank of New York Research Paper, No. 8403.
Amsden, A. H. (1989) Asia's Next Giant: South Korea and Late Industrialization. Oxford: Oxford University Press.
Arrow, K. J. (1971) 'The Role of Securities in the Optimal Allocation of Risk-Bearing', in K. J. Arrow (ed.), Essays in the Theory of Risk-Bearing. Chicago: Markham Press.
Artus, J. R. (1977) 'Measures of Potential Output in Manufacturing for Eight Industrial Countries, 1955-78', International Monetary Fund Staff Papers 24(1): 1-35.
Bailey, M. J. and Tavlas, G. S. (1991) 'Exchange Rate Variability and Direct Investment', Annals 516: 106-29.
Questia, a part of Gale, Cengage Learning. www.questia.com
Book title: Finance and Competitiveness in Developing Countries.
Contributors: José María Fanelli - Editor, Rohinton Medhora - Editor.
Place of publication: London.
Publication year: 2002.
Page number: 353.
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