This article examines how to properly specify and test for factors that affect exchange-rate exposure. Starting from theoretical underpinnings and a sample of U.S. manufacturing industries between 1979 and 1995, we find that 4 of 18 industry groups are significantly exposed to exchange-rate movements through the effect of industry competitive structure, export share, and imported input share. On average, a 1% appreciation of the dollar decreases the return of the average industry by 0.13%. Consistent with our model's predictions, as an industry's markups fall (rise), its exchange-rate exposure increases (decreases). Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
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Kathryn M.E Dominguez & Linda L. Tesar, 2000.
"Trade and Exposure,"
Working Papers
466, Research Seminar in International Economics, University of Michigan.
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Other versions:
Kathryn M.E. Dominguez & Linda L. Tesar, 2001.
"Trade and Exposure,"
NBER Working Papers
8129, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Kathryn M. E. Dominguez & Linda L. Tesar, 2001.
"Trade and Exposure,"
American Economic Review,
American Economic Association, vol. 91(2), pages 367-370, May.
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