Are there asymmetric effects on the link between the real exchange rate and domestic investment in Latin America?
Tingting Lu
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: Finance
Faculty Research Mentor: Nazif Durmaz
Abstract:
With the deepening of globalization, the economies of Latin American countries have become increasingly sensitive to external factors, particularly exchange rate fluctuations, which significantly influence investment decisions. While previous studies have examined the asymmetric impact of currency depreciation on investment in various countries, this remains underexplored in Latin America. This study employs the NARDL model to investigate the asymmetric effects of exchange rate changes on domestic investment across eight Latin American countries: Argentina, Colombia, Chile, Peru, Brazil, Paraguay, Uruguay, and Bolivia. By incorporating short- and long-term asymmetries into the analysis, the NARDL model provides a comprehensive understanding of how exchange rate fluctuations influence domestic investment under different economic conditions. The results reveal that real exchange rate fluctuations have significant asymmetric effects on investment in Latin America, predicted short-run asymmetric effects of exchange rate changes on domestic investment in all countries that lasted into long-run asymmetric effects in Argentina, Brazil, and Bolivia. Additional analysis revealed that currency depreciation has adverse long-run effects on domestic investment in Argentina and has positive long-run effects in Brazil and Bolivia.