IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3811.html
   My bibliography  Save this paper

The Real Exchange Rate, Exports, and Manufacturing Profits: A Theoreti- cal Framework With Some Empirical Support

Author

Listed:
  • Richard H. Clarida

Abstract

This paper investigates the relationship between manufacturing profits, exports, and the real exchange rate. Using Harston's (1990) model of pricing-to-market, we derive a co-integrated log-linear profits equation that restricts the long-run relationship among real U.S. manufacturing profits, domestic sales, the real exchange rate, real unit costs, the U.S. relative price of output, and foreign sales. We show that the elasticity of real profits with respect to the real exchange rate is bounded below by the product of (i) 1 minus the long-run pass-through coefficient and (ii) the ratio of export revenues to total profits. Our empirical findings suggest that, even after taking into account output, costs, and relative prices, real exchange rate fluctuations have a sizable and statistically significant influence on real U.S. manufacturing profits. The framework developed in this paper appears to be of some value in directing attention towards a heretofore underappreciated channel through which real exchange rate changes can potentially influence national savings.

Suggested Citation

  • Richard H. Clarida, 1991. "The Real Exchange Rate, Exports, and Manufacturing Profits: A Theoreti- cal Framework With Some Empirical Support," NBER Working Papers 3811, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3811
    Note: ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3811.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Garcia-Herrero, Alicia & Koivu, Tuuli, 2007. "Can the chinese trade surplus be reduced through exchange rate policy?," BOFIT Discussion Papers 6/2007, Bank of Finland, Institute for Economies in Transition.
    2. Jen Baggs & Eugene Beaulieu & Loretta Fung, 2010. "Are Service Firms Affected By Exchange Rate Movements?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 156-176, June.
    3. Garcia-Herrero, Alicia & Koivu, Tuuli, 2007. "Can the chinese trade surplus be reduced through exchange rate policy?," BOFIT Discussion Papers 6/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Richard H. Clarida & Susan Hickok, 1993. "US Manufacturing and the Deindustrialisation Debate," The World Economy, Wiley Blackwell, vol. 16(2), pages 173-192, March.
    5. Kazimierz Stanczak, 1992. "Devaluations and Revaluations Without Capital Mobilityand PPP," UCLA Economics Working Papers 663, UCLA Department of Economics.
    6. repec:zbw:bofitp:2007_006 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Donaldson, Dave & Atkin, David, 2015. "Who?s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    2. Brambilla, Irene & Porto, Guido, 2016. "Trade, Poverty Eradication, and the Sustainable Development Goals," ADBI Working Papers 629, Asian Development Bank Institute.
    3. Kazunobu HAYAKAWA & Tadashi ITO, 2015. "Tariff Pass-through of the World-wide Trade: Empirical Evidence at Tariff-line Level," Working Papers DP-2015-34, Economic Research Institute for ASEAN and East Asia (ERIA).
    4. Kazuki Onji, 2009. "A tale of pork prices : evasion and attenuation of a Japanese tariff," Trade Working Papers 22883, East Asian Bureau of Economic Research.
    5. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    6. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 91-127, January.
    7. Hjortsoe, Ida & Lewis, John, 2020. "Non-linearities, asymmetries and dollar currency pricing in exchange rate pass-through: evidence from the sectoral level," Bank of England working papers 868, Bank of England.
    8. Sushanta Mallick & Helena Marques, 2008. "Passthrough of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation versus Import Liberalization," Review of International Economics, Wiley Blackwell, vol. 16(4), pages 765-782, September.
    9. Oner Guncavdi & Benan Zeki Orbay, 2004. "The Effects of Foreign Exchange Rate Movements on Domestic Prices in the Turkish Manufacturing Industry," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 1(1), pages 41-56, Julio-Dic.
    10. Ligthart, Jenny E. & Werner, Sebastian E.V., 2012. "Has the euro affected the choice of invoicing currency?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1551-1573.
    11. Siwage Dharma Negara & Dionisius A. Narjoko & Kazunobu Hayakawa, 2024. "Impacts of Tariff Rates on Input Source Choice: Evidence from Indonesia," The Developing Economies, Institute of Developing Economies, vol. 62(1), pages 28-44, March.
    12. Guney, Selin, 2015. "An Analysis of the Pass-Through of Exchange Rates in Tropical Forest Product Markets: A Smooth Transition Approach," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205107, Agricultural and Applied Economics Association.
    13. Agnès Bénassy‐Quéré & Matthieu Bussière & Pauline Wibaux, 2021. "Trade and currency weapons," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 487-510, August.
    14. Nidhaleddine Ben Cheikh & Christophe Rault, 2016. "Recent estimates of exchange rate pass-through to import prices in the euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 69-105, February.
    15. Deborah Swenson, 2005. "Outsourcing Price Decisions: Evidence from U.S. 9802 Imports," NBER Working Papers 11184, National Bureau of Economic Research, Inc.
    16. Hayakawa Kazunobu, 2015. "Impacts of FTA Utilization on Firm Performance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1325-1352, July.
    17. Chinyamata Chipeta & Angella Faith Montfaucon, 2023. "Effects of import taxes on intra‐African trade: New evidence from a case study of Malawi's imports," The World Economy, Wiley Blackwell, vol. 46(2), pages 415-436, February.
    18. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2011. "Employment and Exchange Rates: The Role of Openness and Technology," Open Economies Review, Springer, vol. 22(5), pages 969-984, November.
    19. Lopez, Ramon E., 2010. "Poverty and Income Distribution in Latin America: On the Complementarities Between Trade Policy and Social Public Spending," Working Papers 94204, University of Maryland, Department of Agricultural and Resource Economics.
    20. Rebecca Hellerstein, 2005. "A Decomposition of the Sources of Incomplete Cross-Border Transmission," 2005 Meeting Papers 805, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3811. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.