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The real exchange rate and US manufacturing profits: a theoretical framework with some empirical support
Author(s) -
Clarida Richard H.
Publication year - 1997
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(199707)2:3<177::aid-ijfe50>3.0.co;2-u
Subject(s) - depreciation (economics) , economics , liberian dollar , exchange rate , monetary economics , manufacturing , financial economics , microeconomics , business , profit (economics) , finance , marketing , financial capital , capital formation
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%. © 1997 John Wiley & Sons, Ltd.