Exchange rate volatility and investment: a panel data cointegration approach

Ibrahima Diallo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the link between the real exchange rate volatility and domestic investment by using the panel data cointegration techniques. In the first part of the paper, we study the theoretical link between the exchange rate, its volatility and the investment in a small open economy. The model shows that the effects of exchange rate volatility on investment are nonlinear. In the second part, we examine the empirical link between the exchange rate volatility and the investment. The results illustrate that the exchange rate volatility has a strong negative impact on investment. This outcome is robust in low income and middle income countries, and by using an alternative measurement of exchange rate volatility

Keywords: Exchange rate volatility; Investment; Appreciation; Depreciation; Panel data cointegration; Dynamic Optimization; Capital goods; Expectations (search for similar items in EconPapers)
JEL-codes: O11 O16 O19 O24 O57 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-ifn
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Exchange Rate Volatility and Investment: A Panel Data Cointegration Approach (2015)
Working Paper: Exchange Rate Volatility and Investment, A Panel Data Cointegration Approach (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:5364

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