TITLE:
A Note on the Investment-Enhancing Effect of a Depreciated Real Exchange Rate
AUTHORS:
Pham Van Dai
KEYWORDS:
Real Exchange Rate, Depreciation, Capital Accumulation, Adjustment Cost of Investment
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.1,
January
28,
2015
ABSTRACT: This paper presents a mechanism through which 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.