Real Effective Exchange Rate Uncertainty, Threshold Effects, and Aggregate Investment – Evidence from Latin American Countries
AbstractThis paper provides new empirical evidence on the relationship between real effective exchange rate uncertainty and aggregate investment in six Latin American economies. Its main contributions are that it explicitly tests for linear as well as non-linear effects of uncertainty in a time-series model that allows the country-specific interpretation. A (G)ARCH-based uncertainty measure is constructed for each country which is then included in a GMM time-series model that accounts for the endogeneity of the variables. When accounting for threshold effects, this paper finds that high levels of real effective exchange rate uncertainty affect aggregate investment negatively in all countries in the sample.
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Bibliographic InfoPaper provided by Institute for Economic Policy, Cologne, Germany in its series IWP Discussion Paper Series with number 02/2008.
Date of creation: Feb 2008
Date of revision:
exchange rate uncertainty; GARCH; investment; threshold effects; GMM;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-CBA-2009-01-31 (Central Banking)
- NEP-IFN-2009-01-31 (International Finance)
- NEP-OPM-2009-01-31 (Open Economy Macroeconomics)
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