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Real Effective Exchange Rate Uncertainty, Threshold Effects, and Aggregate Investment – Evidence from Latin American Countries

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  • Bianca Clausen

Abstract

This 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.

Suggested Citation

  • 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.
    • Handle: RePEc:kln:iwpdip:dp02/08
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    References listed on IDEAS

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    Cited by:

    1. Martin Ruzima & Micheal Kofi Boachie, 2018. "Exchange rate uncertainty and private investment in BRICS economies," Asia-Pacific Journal of Regional Science, Springer, vol. 2(1), pages 65-77, April.
    2. Ahsan Abbas & Eatzaz Ahmed & Fazal Husain, 2019. "Political and Economic Uncertainty and Investment Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 58(3), pages 307-331.

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    More about this item

    Keywords

    exchange rate uncertainty; GARCH; investment; threshold effects; GMM;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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