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Investment and the exchange rate: Short run and long run aggregate and sector-level estimates

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Landon, Stuart
Smith, Constance E.

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Abstract

Aggregate and sector-level investment equations are estimated for a panel of 17 OECD countries using an error correction methodology. A real currency depreciation is found to reduce aggregate investment and investment in all nine sectors in the short run, and aggregate investment in the long run. The decline in investment is quite persistent in service sectors, sectors that generally benefit less from an expansion of demand following a currency depreciation. A rise in the real wage has no short run impact on investment in most sectors, but has a significant negative long run effect in six of nine sectors.

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Publisher Info
Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 5 (September)
Pages: 813-835
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Handle: RePEc:eee:jimfin:v:28:y:2009:i:5:p:813-835

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Investment Exchange rate Open economy Wage rate;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Prashanth Mahagaonkar & Rainer Schweickert & Aditya S. Chavali, 2009. "Sectoral R&D Intensity and Exchange Rate Volatility: A Panel Study for OECD Countries," Kiel Working Papers 1531, Kiel Institute for the World Economy. [Downloadable!]
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