On investment and exchange-rate movements

Chi Yung NG, Malick Souare

    Research output: Contribution to journalArticlepeer-review

    2 Citations (Scopus)

    Abstract

    We investigate the ways in which permanent exchange-rate changes may affect investment by influencing domestic and foreign revenue, the cost of imported variable inputs and the investment price of imported capital goods. We find that the revenue and investment-price channels have a quantitatively greater effect on investment than the cost channel. The negative effect of the revenue channel, which affects the marginal profitability of capital, outweighs the positive effect of the investment-price channel, which affects the marginal cost of capital, implying that exchange-rate appreciation has a net negative influence on investment. The estimation results are robust to different approaches to extracting the permanent components of exchange rates.

    Original languageEnglish
    Pages (from-to)2301-2315
    Number of pages15
    JournalApplied Economics
    Volume46
    Issue number19
    DOIs
    Publication statusPublished - Jul 2014

    Scopus Subject Areas

    • Economics and Econometrics

    User-Defined Keywords

    • exchange rate
    • investment
    • machinery and equipment

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