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

Yoichi Matsubayashi ()

No 828, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: 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.

Keywords: Intertemporal Optimization; Marginal q; Pass-Through; Export Exposure (search for similar items in EconPapers)
JEL-codes: C32 E22 F40 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-03
New Economics Papers: this item is included in nep-ifn and nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2008/0828.pdf First version, 2008 (application/pdf)

Related works:
Journal Article: EXCHANGE RATE, EXPECTED PROFIT AND CAPITAL STOCK ADJUSTMENT: JAPANESE EXPERIENCE (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:koe:wpaper:0828

Access Statistics for this paper

More papers in Discussion Papers from Graduate School of Economics, Kobe University Contact information at EDIRC.
Bibliographic data for series maintained by Kimiaki Shirahama ( this e-mail address is bad, please contact ).