Micro and Macro Hysteresis in Employment under Exchange Rate Uncertainty

A baseline micro model leading to employment hysteresis due to hiring- and firing- costs is proposed. A band of inaction accounting for a "weaker" relationship between employment and its determinants is widened by option value effects of exchange rate uncertainty. Based on this micro foundation an aggregation approach under certainty is developed. While at the micro-level exchange rate thresholds have to be passed, at the macro level small changes yield persistent effects. However, under uncertainty, intervals of weak response to exchange rate reversals are introduced on the macro-level. "Spurts" in new employment or firing may occur after an initially weak response.