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The real exchange rate and US manufacturing profits: a theoretical framework with some empirical support

  • Richard H. Clarida

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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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9214.

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Date of creation: 1992
Date of revision:
Handle: RePEc:fip:fednrp:9214
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