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The Economic Consequences of Dollar Appreciation for US Manufacturing Investment: A Time-Series Analysis

  • ROBERT A. BLECKER

    ()

    (Department of Economics, American University)

This paper analyzes the effects of the real value of the dollar on investment in US domestic manufacturing using aggregate data for 1973-2004. Econometric estimation shows a negative effect that is much larger than has been found in any previous study. The exchange rate affects investment mainly, although not exclusively, through the channel of financial or liquidity constraints, rather than by affecting the desired stock of capital. Counterfactual simulations show that US manufacturing investment would have been 61% higher and the capital stock would have been 17% higher in 2004 if the dollar had not appreciated after 1995.

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File URL: http://w.american.edu/cas/economics/repec/amu/workingpapers/2006-07.pdf
File Function: First version, 2006
Download Restriction: no

Paper provided by American University, Department of Economics in its series Working Papers with number 2006-07.

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Length: 46 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:amu:wpaper:0706
Contact details of provider: Web page: http://www.american.edu/cas/economics/

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  1. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
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  4. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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  7. Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP -412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  9. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  10. Clarida, R.H., 1992. "The real Exchange Rate and U.S. Manufacturing Profit : A Theoretical Framework with Some Empirical Support," Discussion Papers 1992_28, Columbia University, Department of Economics.
  11. Jose Campa & Linda S. Goldberg, 1993. "Investment in Manufacturing, Exchange-Rates and External Exposure," NBER Working Papers 4378, National Bureau of Economic Research, Inc.
  12. Jose Campa & Linda S. Goldberg, 1995. "Investment, Pass-Through and Exchange Rates: A Cross-Country Comparison," NBER Working Papers 5139, National Bureau of Economic Research, Inc.
  13. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  14. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
  15. Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-88, November.
  16. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  17. Chirinko, Robert S & Schaller, Huntley, 1995. "Why Does Liquidity Matter in Investment Equations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 527-48, May.
  18. Feinberg, Robert M, 1986. "The Interaction of Foreign Exchange and Market Power Effects on German Domestic Prices," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 61-70, September.
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