Anticipated Real Exchange-rate Changes and the Dynamics of Investment

Anticipated Real Exchange-rate Changes and the Dynamics of Investment PDF

Author: Luis Serven

Publisher: World Bank Publications

Published: 1990

Total Pages: 54

ISBN-13:

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Unanticipated changes in the real exchange rate affect investment through their impact on the desired capital stock, whose direction depends on a number of factors and is in general ambiguous. In contrast, anticipated changes can also have an important effect on the optimal timing of investment, in a direction that depends on the financial openness of the economy and on the important content of capital goods. This issue is explored using a simple macroeconomic model.

The Effects of Real Exchange Rate Volatility on Sectoral Investment

The Effects of Real Exchange Rate Volatility on Sectoral Investment PDF

Author: Bahar Erdal

Publisher: Routledge

Published: 2017-05-18

Total Pages: 150

ISBN-13: 1351801716

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Originally published in 1997. This study investigates what the effects of real exchange rate volatility are on sectorial investment in the fixed and flexible exchange rate systems. It lays out the results of research into the effects of the levels and volatility of real exchange rates on investment in the manufacturing sectors of the countries in the European Monetary System as well as of the countries in the flexible exchange rate system, with data from between 1973 and 1993. Examining the differences between the two systems in the results this book also looks at exchange rate effects on interest rates at the time.

Real Exchange Rates, Economic Complexity, and Investment

Real Exchange Rates, Economic Complexity, and Investment PDF

Author: Steve Brito

Publisher: International Monetary Fund

Published: 2018-05-10

Total Pages: 21

ISBN-13: 1484356349

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We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.

Real Exchange Rates, Economic Complexity, and Investment

Real Exchange Rates, Economic Complexity, and Investment PDF

Author: Steve Brito

Publisher: International Monetary Fund

Published: 2018-05-10

Total Pages: 21

ISBN-13: 1484354834

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We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.

Corporate Investment and the Real Exchange Rate

Corporate Investment and the Real Exchange Rate PDF

Author: Mai Chi Dao

Publisher: International Monetary Fund

Published: 2017-08-04

Total Pages: 47

ISBN-13: 1484313747

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We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period. We show that depreciations boost profits, investment, and sales of firms that are more financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.

Capital Mobility

Capital Mobility PDF

Author: Leonardo Leiderman

Publisher: Cambridge University Press

Published: 1994-07-14

Total Pages: 400

ISBN-13: 9780521454384

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This edited volume examines capital mobility in both industrialised and developing countries.

Inflation Targeting and Exchange Rate Management In Less Developed Countries

Inflation Targeting and Exchange Rate Management In Less Developed Countries PDF

Author: Mr. Marco Airaudo

Publisher: International Monetary Fund

Published: 2016-03-08

Total Pages: 65

ISBN-13: 1475523165

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We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

Evolution and Performance of Exchange Rate Regimes

Evolution and Performance of Exchange Rate Regimes PDF

Author: Mr.Kenneth Rogoff

Publisher: International Monetary Fund

Published: 2003-12-01

Total Pages: 85

ISBN-13: 1451875843

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Using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free float or rigid peg. Rather, intermediate regimes have shown remarkable durability. The analysis suggests that as economies mature, the value of exchange rate flexibility rises. For countries at a relatively early stage of financial development and integration, fixed or relatively rigid regimes appear to offer some anti-inflation credibility gain without compromising growth objectives. As countries develop economically and institutionally, there appear to be considerable benefits to more flexible regimes. For developed countries that are not in a currency union, relatively flexible exchange rate regimes appear to offer higher growth without any cost in credibility.

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