Corporate Investment and the Real Exchange Rate

By Mai Dao, Camelia Minoiu, Jonathan David Ostry

August 4, 2017

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Format: Chicago

Mai Dao, Camelia Minoiu, and Jonathan David Ostry. Corporate Investment and the Real Exchange Rate, (USA: International Monetary Fund, 2017) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period. We show that depreciations boost profits, investment, and sales of firms that are more financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.

Subject: Corporate investment, Depreciation, Economic theory, Financial frictions, Financial statements, Labor, Labor share, National accounts, Public financial management (PFM)

Keywords: Balance sheet channel, Corporate investment, Depreciation, Exchange rate, External finance, Financial frictions, Financial statements, Firm balance sheet channel, Firm growth, Firm investment, Firm's labor share, Global, Investment profitability, Labor intensity, Labor share, Labor-intensity firm, Payroll information, Payroll share, Profitability expectation, Real effects of depreciation, Real exchange rate, Unobserved firm-level, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/183
Stock No:

WPIEA2017183
ISBN:

9781484313749
ISSN:

1018-5941

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