The Economic Consequences of Dollar Appreciation for U.S. Manufacturing Investment: A Time-Series Analysis

Robert Blecker ()
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Robert Blecker: Department of Economics, American University

No 2006-07, Working Papers from American University, Department of Economics

Abstract: This paper analyzes the effects of the real value of the dollar on investment in US domestic manufacturing, using aggregate time-series data for 1973-2004. The econometric estimates reveal robust evidence for a negative effect of the dollar that is much larger than has been found in any previous study (and which is not sensitive to various alternative specifications). The results also suggest that the exchange rate affects investment mainly, although not exclusively, through the channel of financial or liquidity constraints, rather than by affecting the desired stock of capital. Counterfactual simulations show that US manufacturing investment would have been 61% higher and the capital stock would have been 17% higher in 2004 if the dollar had not appreciated after 1995.

Keywords: investment; manufacturing; exchange rate; US dollar; profits; US economy (search for similar items in EconPapers)
JEL-codes: E22 F31 L60 E25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mac
Date: 2006-05
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