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

TEL > Vol.5 No.1, February 2015

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

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Download as PDF (Size: 2660KB) PP. 19-23

DOI: 10.4236/tel.2015.51004 3,260 Downloads 3,902 Views Citations

Author(s)

Pham Van Dai

Affiliation(s)

Finders Business School, Flinders University, Adelaide, Australia.

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.

KEYWORDS

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

Share and Cite:

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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