Servén, Luis2013-08-062013-08-062002-04https://hdl.handle.net/10986/14809The author examines empirically the link between real exchange rate uncertainty and private investment in developing countries using a large cross country-time series data set. He builds a GARCH-based measure of real exchange rate volatility and finds that it has a strong negative impact on investment, after controlling for other standard investment determinants and taking into account their potential endogeneity. The impact of uncertainty is not uniform, however. There is some evidence of threshold effects, so that uncertainty only matters when it exceeds some critical level. In addition, the negative impact of real exchange rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems.en-USCC BY 3.0 IGOACCELERATORADVERSE EFFECTSAGGREGATE VOLATILITYAVERAGE LEVELCAPITAL ACCUMULATIONCAPITAL FORMATIONCAPITAL GOODSCOALCROSS COUNTRYCROSS-COUNTRY SAMPLECURRENCY BOARDSCURRENCY RISKDECENTRALIZATIONDEPENDENT VARIABLEDEVELOPING COUNTRIESDEVELOPING ECONOMIESDEVELOPMENT ECONOMICSDYNAMIC PANELECONOMETRIC ANALYSISECONOMETRICSECONOMIC DYNAMICSECONOMIC INSTABILITYECONOMIC REVIEWECONOMIC STATISTICSECONOMIC STUDIESECONOMIC SURVEYSECONOMIC THEORYELASTICITYELASTICITY OF SUBSTITUTIONEMERGING MARKETSEMPIRICAL LITERATUREEMPIRICAL RESULTSEMPIRICAL STUDIESEMPLOYMENTEMPLOYMENT EQUATIONSESTIMATION RESULTSEXPLANATORY VARIABLESEXPORTSFINANCIAL DEPTHFINANCIAL DEVELOPMENTFINANCIAL INTERMEDIATIONFINANCIAL MARKETSFINANCIAL SYSTEMSGDPGDP DEFLATORGROWTH LITERATUREGROWTH VOLATILITYIMPERFECT COMPETITIONIMPORTSINCOMEINCOME COUNTRIESINCOME DEVELOPING COUNTRIESINCOME LEVELSINDUSTRIAL ECONOMIESINFLATIONINFLATION RATEINFLATION RATESINTEREST RATESINVESTMENT-UNCERTAINTY RELATIONSHIPIRREVERSIBILITYLAGGED DEPENDENTLAGGED LEVELSLAGGED VALUESLDCSLIQUID LIABILITIESMACROECONOMIC STABILITYMACROECONOMIC VARIABLESMACROECONOMIC VOLATILITYMARGINAL COSTMARGINAL REVENUEMONETARY ECONOMICSNATURAL RESOURCESNEGATIVE EFFECTNEGATIVE IMPACT0 HYPOTHESISOPEN ECONOMIESPER CAPITA INCOMEPOLICY RESEARCHPOLITICAL ECONOMYPOOR COUNTRIESPOOR PEOPLEPRIVATE INVESTMENTPRIVATE SECTORPROFITABILITYPURCHASING POWERREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATE UNCERTAINTYREAL EXCHANGE RATE VOLATILITYREAL EXCHANGE RATESREAL INTERESTREAL INTEREST RATEREAL OPTIONS MODELRELATIVE PRICERETURNS TO SCALERICH COUNTRIESRISK AVERSERISK AVERSIONRISK DIVERSIFICATIONSERIAL CORRELATIONSIGNIFICANT EFFECTSIGNIFICANT IMPACTTAX REFORMTECHNOLOGICAL FACTORSTELECOMMUNICATIONSTERMS OF TRADETIME SERIESTRADE OPENNESSTRADE SHOCKSVALUE ADDEDVARIABLE INPUTSWEALTH EXCHANGE RATESREAL EXCHANGE RATEPRIVATE INVESTMENTSENDOGENOUS VARIABLESUNCERTAINTYFINANCIAL SYSTEMSWorld Bank10.1596/1813-9450-2823