Abstract
The aim of this paper is to investigate the response of private investment to exchange rate fluctuations in Tunisia using a sample of 548 manufacturing firms. We use an accelerator-profit investment specification augmented by variables measuring the variation and volatility of exchange rates. Results of the system GMM technique show that the effects of effective and bilateral exchange rates depreciation on investment are negative. Regarding the effects of volatility, measured by the GARCH model, findings suggest that the exchange rate uncertainty explains the decline of the private investment in Tunisian firms. Once the whole sample disaggregated according to the size and the ownership structure, the analysis shows that the negative effects of exchange rate fluctuations on investment are more important for small and medium firms than for large ones. On the other hand, exchange rate fluctuations affect almost equally the local and foreign firms.