Investment, monetary policy and exchange rates: An analysis of mechanisms for transmission from the monetary sector to the real sector

Abstract

IN THE ARTICLE PRESENTED HERE THE AUTHOR ANALYZES THE MECHANISMS THROUGH WHICH MONETARY POLICY AND THE VARIATION RATE OF THE NOMINAL EXCHANGE RATE MAY IMPACT INVESTMENT DECISIONS OF FIRMS. IN ORDER TO DESCRIBE COMPANIE´S INVESTMENT BEHAVIOR, THE Q MODEL FROM TOBIN (1969) IS USED, AND THE WAY IN WHICH MONETARY VARIABLES CAN INFLUENCE THE COSTS OF THE REPLACEMENT OF CAPITAL WEALTH IS DEMONSTRATED. THE DISCUSSION IN THIS ARTICLE CONFRONTS ONE OF THE LONGEST-LASTING CONTROVERSIES IN ECONOMIC THEORY: THE CONTROVERSY OVER THE NEUTRALITY OF MONEY. IN THE PRESENT MODEL, BASED ON INDIVIDUAL CALCULATION BY CONSUMERS, THE RESULT IS ONE OF MONETARY ASSETS. THIS MAKES IT POSSIBLE TO DEMONSTRATE, ON THE ONE HAND, THAT MONETARY VARIABLES INFLUENCE INVESTMENT DECISIONS IN A NUMBER OF WAYS, AND ON THE OTHER HAND, TO DEMONSTRATE THE LIMITATIONS OF THAT MONETARY POLICY FOR STIMULATING CAPITAL ACCUMULATION.