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|Title: ||Will the Euro be beneficial on firm's investment behaviour?|
|Authors: ||Atella, Vincenzo|
|Keywords: ||exchange rate|
|Issue Date: ||Nov-2002 |
|Series/Report no.: ||Quaderni CEIS; 180|
|Abstract: ||The literature on the relationship between exchange rate and investment mainly focus on the devaluation argument, which evidences that a devaluation may affect positively investment spending. The goal of this paper is to extend the analysis to how exchange rate variability can influence firm’s innovation process.
Employing a large panel of Italian firms we estimate the impact of exchange rate on investment. Combining an ECM model specification with a model of signal extraction we find that exchange rate volatility reduces investment, with a decreasing sensitivity the greater is firm
market power. A stable exchange rate is then an incentive to investment as it allows more reliable estimation of its marginal productivity. To this extent, an 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.|
|Appears in Collections:||Quaderni|
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