Domestic investment responses to changes in the real exchange rate: Asymmetries of appreciation versus depreciation

Abstract

We examine how movements in the real exchange rate impact private domestic investment. Importantly, we consider whether investment responds differently to real depreciations versus real appreciations. Using a sample of 6 emerging markets over 1980 to 2014, we show that considering asymmetric responses provides an important contribution to this literature. Previous mixed results that assume symmetric responses may be better explained by considering such asymmetric effects.