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Exchange Rate, Expected Profit, and Capital Stock Adjustment: Japanese Experience


  • Yoichi Matsubayashi

    () (Graduate School of Economics, Kobe University)


This paper empirically investigates the impact of exchange rate shocks on corporate investment. An intertemporal optimization model is developed in which an individual corporation in an open economy adjusts its capital stock according to the Tobin fs q, which represents the future stream of the profit rate and changes by the real exchange rate. By explicitly considering the marginal q, the transmission mechanism from real exchange rate shocks to investment dynamics via expected profitability is examined based on the Vector Autoregressive model. Empirical evidence suggests that the depreciation of the Japanese yen increases the expected profitability of the firm and stimulates corporate investment, especially in the machinery sector. This characteristic basically corresponds to the structure of external exposure and offers an important finding from the viewpoint of Japanese macroeconomic fluctuations.

Suggested Citation

  • Yoichi Matsubayashi, 2009. "Exchange Rate, Expected Profit, and Capital Stock Adjustment: Japanese Experience," Discussion Papers 0828, Graduate School of Economics, Kobe University.
  • Handle: RePEc:koe:wpaper:0828

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    References listed on IDEAS

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    Cited by:

    1. Dejan Živkov & Jovan Njegić & Vera Mirović, 2016. "Dynamic Nexus between Exchange Rate and Stock Prices in the Major East European Economies," Prague Economic Papers, University of Economics, Prague, vol. 2016(6), pages 686-705.
    2. Masaki Hotei, 2012. "The Effects of the Exchange Rate on Japanese Firms' Investment: An Analysis with Firm-Level Data," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(5), pages 663-682, November.
    3. Dejan Živkov & Jovan Njegić & Vera Mirović, . "Dynamic Nexus between Exchange Rate and Stock Prices in the Major East European Economies," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-20.

    More about this item


    Intertemporal Optimization; Marginal q; Pass-Through; Export Exposure;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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