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Panel Estimation Of The Impact Of Exchange Rate Uncertainty On Investment In The Major Industrial Countries

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  • Joseph P. Byrne
  • E. Philip Davis

Abstract

We estimate the impact of exchange rate uncertainty on investment, using panel estimation featuring a decomposition of exchange rate volatility derived from the components GARCH model of Engle and Lee (1999). For a poolable subsample of EU countries, it is the transitory and not the permanent component of volatility which adversely affects investment, implying high frequency shocks of the type that may be generated by volatile short term capital flows are most deleterious for investment. Results based on EGARCH also suggest that the response of investment to exchange rate uncertainty may depend partly on the sign of the initial shock. (100 words)

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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Public Policy Discussion Papers with number 03-05.

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Length: 28 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:bru:bruppp:03-05

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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Cited by:
  1. Bianca Clausen, 2008. "Real Effective Exchange Rate Uncertainty, Threshold Effects, and Aggregate Investment – Evidence from Latin American Countries," IWP Discussion Paper Series 02/2008, Institute for Economic Policy, Cologne, Germany.
  2. Byrne, Joseph P. & Davis, E. Philip, 2004. "Permanent and temporary inflation uncertainty and investment in the United States," Economics Letters, Elsevier, vol. 85(2), pages 271-277, November.

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