Vincenzo Atella () (University of Rome II - Faculty of Economics) Gianfranco Enrico Atzeni () (University of Sassari - Dip.to di Economia Impresa e Regolamentazione) Pier Luigi Belvisi () (Universitˆ degli Studi di Roma Tor Vergata - Faculty of Law)
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The literature on the relationship between exchange rate and investment mainly focuses on the devaluation argument, which provides evidence that a devaluation may positively affect investment spending. The goal of this paper is to extend the analysis to how exchange rate variability can influence firm innovation process. Employing a large panel of Italian firms and using a model of signal extraction we find that exchange rate volatility reduces investment, with a decreasing sensitivity the greater the firm market power. A stable exchange rate is then an incentive to invest as it allows a more reliable estimation of its marginal productivity. To this extent, any economic system may benefit from a stable exchange rate in terms of investment and profit, provided it is able to strengthen its firm market power.
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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number
32.
Length: 16 Date of creation: 01 Aug 2003 Date of revision: Handle: RePEc:rtv:ceisrp:32
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
References listed on IDEAS 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.:
Linda Goldberg & Joseph Tracy, 2000.
"Exchange Rates and Local Labor Markets,"
NBER Chapters,
in: The Impact of International Trade on Wages, pages 269-307
National Bureau of Economic Research, Inc.
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