Investment and Exchange Rate Under Uncertainty

Vincenzo Atella, Gianfranco Atzeni and Pier Luigi Belvisi ()
Additional contact information
Pier Luigi Belvisi: Universitˆ degli Studi di Roma Tor Vergata - Faculty of Law

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: 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.

Keywords: exchange rate; firm heterogeneity; investment; uncertainty (search for similar items in EconPapers)
JEL-codes: D81 E22 F41 F42 (search for similar items in EconPapers)
Pages: 16
Date: 2003-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://ceistorvergata.it/RePEc/rpaper/No-32-Atella,Atzeni,Belvisi.pdf (application/pdf)

Related works:
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:rtv:ceisrp:32

Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
https://ceistorvergata.it

Access Statistics for this paper

More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Bibliographic data for series maintained by Barbara Piazzi ().