The literature on the relationship between exchange rate and investment mainly focus on the devaluation argument, which evidences that a devaluation may affect positively investment spending. The goal of this paper is to extend the analysis to how exchange rate variability can influence firm’s innovation process. Employing a large panel of Italian firms we estimate the impact of exchange rate on investment. Combining an ECM model specification with a model of signal extraction we find that exchange rate volatility reduces investment, with a decreasing sensitivity the greater is firm market power. A stable exchange rate is then an incentive to investment as it allows more reliable estimation of its marginal productivity. To this extent, an 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.
Atella, V., Belvisi, P., & Atzeni, G. (2002). Will the Euro be beneficial on firm's investment behaviour?.
|Citazione:||Atella, V., Belvisi, P., & Atzeni, G. (2002). Will the Euro be beneficial on firm's investment behaviour?.|
|Data di pubblicazione:||nov-2002|
|Titolo:||Will the Euro be beneficial on firm's investment behaviour?|
|Autori:||Atella, Vincenzo;Belvisi, Pierluigi;Atzeni, Gianfranco|
|Appare nelle tipologie:||99 - Altro|