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

The impact of the introduction of the Euro on foreign exchange rate risk exposures

“…Table 6 presents means and medians of leverage before and after the introduction of the Euro as well as two-sample t-tests, two-sample median tests, as well as nonparametric Wilcoxon tests for differences across time. Overall, we find that leverage of multinational firms actually increases from a median of 2.10 to 2.27 in the Euro area, from 1.58 to -1997(pre-Euro) and 1998-2001. The table also presents p-values of two-sample t-tests that the means are equal across periods.…”

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

“…14 However, none of these studies has tested for exchange rate effects, 15 while none of the studies that have linked investment to exchange rates has included profit or cash flow variables. This is especially surprising because, as noted earlier, many studies-including Campa & Goldberg (1999) as well as Clarida (1997)-have found significant effects of exchange rates on profit (price-cost) margins or total realized profits. 16 Previous studies of exchange rates and investment-especially Goldberg (1995, 1999), who modeled this formally-have tended to presume that the exchange rate affects investment only through its impact on the desired capital stock.…”

“…37 These difficulties with the profit equation are not surprising, since the only variable that was significant at the 5% level in Clarida's model of US manufacturing profits was the exchange rate (Clarida, 1997, p. 182). 38 Clarida (1997) uses demand for domestic goods instead of GDP because the former excludes exports. We constructed the same measure and tested it in our profit equations, and found that it yielded very similar results to the GDP growth rate but with a slightly worse fit.…”

“…In principle, the effects of E may be either positive or negative depending on the degree to which a given industry or sector competes with foreign products or relies on imported inputs. Clarida's (1997) results strongly suggest a negative effect of E for the US manufacturing sector as a whole, even though there may be exceptions in other sectors or at a more disaggregated level. Since there is less theory to rely on in specifying the profit equation (3) than the investment equation (1), the lagged dependent variable in (3) is useful for capturing the effects of possible omitted explanatory variables (again we restrict the lags to p = q = 1).…”

An empirical analysis of the impacts of real exchange rate on GDP, manufacturing output and services sector in Mauritius

“…Related to the impact studies on the manufacturing sector in United States, Branson and Love (1988) evaluated the impacts of RER on twenty 2‐digit SIC manufacturing sectors over the period 1970–1986 and reported that the elasticity of the RER variable was negative and significant for 18 out of 20 industries. In a related study, Clarida (1992) assessed the association between RER and manufacturing profits by employing Marston's (1990) model of pricing‐to‐market in United States over the sample period 1973:2 to 1990:4. The result showed that 1% depreciation of the dollar edged up real profits by 0.08% in the long‐run.…”