Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison
Posted: 5 Jan 1998
Date Written: June 1996
Using detailed data from the United States, Canada, the United Kingdom, and Japan, we examine the implications of exchange rates for time series of sectoral investment. Both theoretically and empirically we show that investment responsiveness to exchange rates varies over time, positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production. Important differences exist in investment endogeneity across high and low markup sectors, with investment in low markup sectors often significantly more responsive to exchange rates. Cross-country differences in investment response are only partially explained by industrial organization arguments.
Keywords: investment and exchange rates
JEL Classification: E22, F31, F30
Suggested Citation: Suggested Citation