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Labour as leverage for the exchange rate - Does labour intensity magnify the effect that exchange rates have on output?

Mårtensson, Sebastian LU (2019) NEKH02 20191
Department of Economics
Abstract
This thesis examines if the amount of labour intensity within a sector changes the effect that the real effective exchange rate have on output. Fixed panel data regressions for Sweden, Norway and Denmark lend support to the hypothesis that labour intensive sectors’ output react more to changes in the real exchange rate than its less labour intensive counterparts. The regressions show that the labour intensity and the change in the real effective exchange rate interact which other to create a leveraging effect on output. This suggests that targeting a competitive exchange rate affects labour intensive sectors the most and has further policy implications for countries aiming for a weaker real exchange rate. The robustness of the results... (More)
This thesis examines if the amount of labour intensity within a sector changes the effect that the real effective exchange rate have on output. Fixed panel data regressions for Sweden, Norway and Denmark lend support to the hypothesis that labour intensive sectors’ output react more to changes in the real exchange rate than its less labour intensive counterparts. The regressions show that the labour intensity and the change in the real effective exchange rate interact which other to create a leveraging effect on output. This suggests that targeting a competitive exchange rate affects labour intensive sectors the most and has further policy implications for countries aiming for a weaker real exchange rate. The robustness of the results comes into question due to a low degree of explained variance and unexpected coefficients of the control variables within the models. Statistical significance of the interaction term is reached inconsistently which further casts doubt upon the results. Future research could further investigate how labour intensity and the exchange rate affect the output of sectors, as well as ways to optimize the model to make it more consistent and to explain a greater deal of currently unexplained variance. (Less)
Please use this url to cite or link to this publication:
author
Mårtensson, Sebastian LU
supervisor
organization
course
NEKH02 20191
year
type
M2 - Bachelor Degree
subject
keywords
Trade, output, exchange rate, labour, labour intensity, nordic countries
language
English
id
8988352
date added to LUP
2019-08-08 11:31:08
date last changed
2019-08-08 11:31:08
@misc{8988352,
  abstract     = {{This thesis examines if the amount of labour intensity within a sector changes the effect that the real effective exchange rate have on output. Fixed panel data regressions for Sweden, Norway and Denmark lend support to the hypothesis that labour intensive sectors’ output react more to changes in the real exchange rate than its less labour intensive counterparts. The regressions show that the labour intensity and the change in the real effective exchange rate interact which other to create a leveraging effect on output. This suggests that targeting a competitive exchange rate affects labour intensive sectors the most and has further policy implications for countries aiming for a weaker real exchange rate. The robustness of the results comes into question due to a low degree of explained variance and unexpected coefficients of the control variables within the models. Statistical significance of the interaction term is reached inconsistently which further casts doubt upon the results. Future research could further investigate how labour intensity and the exchange rate affect the output of sectors, as well as ways to optimize the model to make it more consistent and to explain a greater deal of currently unexplained variance.}},
  author       = {{Mårtensson, Sebastian}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Labour as leverage for the exchange rate - Does labour intensity magnify the effect that exchange rates have on output?}},
  year         = {{2019}},
}