The literature on the relationship between exchange rate and investment mainly focuses on the devaluation argument, which provides evidence that a devaluation may positively affect investment spending. The goal of this paper is to extend the analysis to how exchange rate variability can influence firm innovation process. Employing a large panel of Italian firms and using a model of signal extraction we find that exchange rate volatility reduces investment, with a decreasing sensitivity the greater the firm market power. A stable exchange rate is then an incentive to invest as it allows a more reliable estimation of its marginal productivity. To this extent, any 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. (2003). Investment and exchange rate under uncertainty.
|Citazione:||Atella, V. (2003). Investment and exchange rate under uncertainty.|
|Data di pubblicazione:||ago-2003|
|Titolo:||Investment and exchange rate under uncertainty|
|Appare nelle tipologie:||99 - Altro|