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The Real Exchange Rate and US Manufacturing Profits: A Theoretical Framework with Some Empirical Support

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  • Clarida, Richard H

Abstract

This paper studies the relationship between the real exchange rate and manufacturing profits using Marston's model of pricing-to-market. Looking at US data, we find that a sustained real depreciation of the dollar has a significant and substantial influence on manufacturing profits. During the early 1980s, the appreciation of the dollar reduced profits by at least 25% conditional on the realized time path of sales, costs, and the US markup. The post-plaza depreciation of the dollar boosted profits at least 30%. Copyright @ 1997 by John Wiley & Sons, Ltd. All rights reserved.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 2 (1997)
Issue (Month): 3 (July)
Pages: 177-87

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Handle: RePEc:ijf:ijfiec:v:2:y:1997:i:3:p:177-87

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Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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Cited by:
  1. Tarek Harchaoui & Faouzi Tarkhani & Terence Yuen, 2005. "The Effects of the Exchange Rate on Investment: Evidence from Canadian Manufacturing Industries," Working Papers 05-22, Bank of Canada.
  2. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
  3. Nucci, Francesco & Pozzolo, Alberto F., 2001. "Investment and the exchange rate: An analysis with firm-level panel data," European Economic Review, Elsevier, vol. 45(2), pages 259-283, February.
  4. Bartram, Sohnke M. & Karolyi, G. Andrew, 2006. "The impact of the introduction of the Euro on foreign exchange rate risk exposures," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 519-549, October.
  5. Juann H. Hung & Sandra Viana, 1995. "Modelling U.S. services trade flows: a cointegration-ECM approach," Research Paper 9518, Federal Reserve Bank of New York.
  6. Muller, Aline & Verschoor, Willem F.C., 2006. "Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 495-518, October.
  7. Katalin Bodnár, 2009. "Exchange rate exposure of Hungarian enterprises – results of a survey," MNB Occasional Papers 2009/80, Magyar Nemzeti Bank (the central bank of Hungary).
  8. Linda Goldberg & Joseph Tracy, 2000. "Exchange Rates and Local Labor Markets," NBER Chapters, in: The Impact of International Trade on Wages, pages 269-307 National Bureau of Economic Research, Inc.
  9. Robert A. Blecker, 2006. "The Economic Consequences of Dollar Appreciation for US Manufacturing Investment: A Time-Series Analysis," Working Papers 2006-07, American University, Department of Economics.
  10. Bartram, Sohnke M., 2007. "Corporate cash flow and stock price exposures to foreign exchange rate risk," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 981-994, December.
  11. Tsui, Hsiao-Chien, 2008. "Exchange rate and pricing behavior: Comparison of Taiwan with Japan for manufacturing industries," Japan and the World Economy, Elsevier, vol. 20(2), pages 290-301, March.
  12. Nazli Toraganli, 2010. "Exchange Rate Pass-Through and Exposure in the Turkish Economy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(1), pages 47-69.

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