Abstract: Taking seasonal data of G-7 countries over the period of 1995 to 2012 as sample, we estimate their co-integration equations about growth rate of fixed asset investment by means of autoregressive distributed lag model and bound testing approach proposed by Pesaran et al. in 2001. This paper aims at analyzing the effect which volatility of real exchange rate has on fixed asset investment and attempts to provide some references for research on Chinese exchange rate reforms. We find in the short run, real effective exchange rate has positive effect on investment in America, Germany, France, England and Canada; in the long run, a real appreciation could stimulate domestic investment in Japan, Germany, France, England and Canada. The conclusion is that, except for Italy, an appreciation promotes domestic investment but varies in degree with different countries.
Keywords: Real Effective Exchange Rate, Autoregressive Distributed Lag Model, Bound Testing Approach, Fixed Asset Investment
source:Finance & Trade Economics ,No12,2013