On the asymmetric effects of the real exchange rate on domestic investment in G7 countries

Abstract

AbstractTwo studies have assessed the symmetric and asymmetric effects of exchange rate changes on domestic investment. One included six emerging countries and the other one, 18 African nations. Both revealed that using nonlinear models to assess the asymmetric effects yield a more significant outcome compared to symmetric and linear models. We add to this small literature by showing the same using quarterly data from each of the G7 countries. Indeed, nonlinear models produced relatively more short‐run and long‐run effects of changes in the real effective exchange rate on domestic investment, though in an asymmetric manner.