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

  • Landon, Stuart
  • Smith, Constance E.

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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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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