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

Richard H. Clarida

39 citations0/0 files storedInternational Journal of Finance & Economics

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Monetary Policy and Economic Impact Global trade and economics Global Financial Crisis and Policies

Abstract

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.

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