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

  • Clarida, Richard H

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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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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