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Does the Nominal Exchange Rate Regime Matter for Investment?

Hjalmar Böhm and Michael Funke

No 578, CESifo Working Paper Series from CESifo

Abstract: This paper analyses the impact of exchange rate uncertainty upon the pattern of investment in different exchange rate regimes (very hard pegs, intermediate regimes, and floats) by means of a unified approach. The comparison of different exchange rate regimes indicates that currency volatility exerts only a small influence upon the level of investment spending. On the other hand, firms turn out to be more cautious about responding to exchange rate shocks in a credible target zone model than in a flexible exchange rate regime or in a target zone model with stochastic realignments.

Keywords: investment; uncertainty; irreversibility; exchange rate regimes (search for similar items in EconPapers)
Date: 2001
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