A Note on the Investment-Enhancing Effect of a Depreciated Real Exchange Rate

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=53594#.VMnk_CzQrzE

Author(s)  

Pham Van Dai

Affiliation(s)

Finders Business School, Flinders University, Adelaide, Australia.

ABSTRACT

This paper presents a mechanism through which <span "="">a depreciated real exchange rate can lead to a higher investment rate. In an intertemporal framework, it shows that a depreciated real exchange rate can make the tradable sector more profitable and thus a greater requirement for capital. Moreover, the investment-enhancing effect of a depreciated real exchange rate decreases in magnitude when there is higher adjustment cost of investment.

 

KEYWORDS

Real Exchange Rate, Depreciation, Capital Accumulation, Adjustment Cost of Investment

Cite this paper

Dai, P. (2015) A Note on the Investment-Enhancing Effect of a Depreciated Real Exchange Rate. Theoretical Economics Letters, 5, 19-23. doi: 10.4236/tel.2015.51004.

 

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