Real Effective Exchange Rate Uncertainty, Threshold Effects, and Aggregate Investment – Evidence from Latin American Countries
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.
|Date of creation:||Feb 2008|
|Contact details of provider:|| Postal: Pohligstr. 1, 50969 Köln|
Phone: +49(0)221/ 470-5347
Fax: +49(0)221/ 470 -5350
Web page: http://www.iwp.uni-koeln.de/
More information through EDIRC
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.:
- Atella, Vincenzo & Atzeni, Gianfranco Enrico & Belvisi, Pier Luigi, 2003. "Investment and exchange rate uncertainty," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 811-824, November.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Robert Lensink, 2002. "Is the uncertainty-investment link non-linear? Empirical evidence for developed economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(1), pages 131-147, March.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
- Darby, Julia, et al, 1999.
"The Impact of Exchange Rate Uncertainty on the Level of Investment,"
Royal Economic Society, vol. 109(454), pages C55-67, March.
- Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
- Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- César Calderón & Luis Servén, 2004.
"The Effects of Infrastructure Development on Growth and Income Distribution,"
Working Papers Central Bank of Chile
270, Central Bank of Chile.
- Calderon, Cesar & Serven, Luis, 2004. "The effects of infrastructure development on growth and income distribution," Policy Research Working Paper Series 3400, The World Bank.
- César Calderón & Luis Servén, 2005. "The Effects of Infrastructure Development on Growth and Income Distribution," DEGIT Conference Papers c010_056, DEGIT, Dynamics, Economic Growth, and International Trade.
- Bruce A. Blonigen, 2005.
"A Review of the Empirical Literature on FDI Determinants,"
NBER Working Papers
11299, National Bureau of Economic Research, Inc.
- Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
- Miguel D. Ramirez & Nader Nazmi, 2003. "Public Investment and Economic Growth in Latin America: an Empirical Test," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 115-126, February.
- Serven, Luis, 1998. "Macroeconomic uncertainty and private investment in developing countries - an empirical investigation," Policy Research Working Paper Series 2035, The World Bank.
- Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
- Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
- Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Gyan Pradhan & Zeljan Schuster & Kamal Upadhyaya, 2004. "Exchange rate uncertainty and the level of investment in selected South-east Asian countries," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2161-2165.
- Mckenzie, Michael D., 1998. "The impact of exchange rate volatility on Australian trade flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(1), pages 21-38, January.
When requesting a correction, please mention this item's handle: RePEc:kln:iwpdip:dp02/08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Müller)
If references are entirely missing, you can add them using this form.