TY  - JOUR
AU  - Clarida,Richard H.
TI  - The Real Exchange Rate, Exports, and Manufacturing Profits: A Theoreti- cal Framework With Some Empirical Support
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3811
PY  - 1991
Y2  - August 1991
UR  - http://www.nber.org/papers/w3811
L1  - http://www.nber.org/papers/w3811.pdf
N1  - Author contact info:
Richard H. Clarida
Columbia University
420 West 118th Street
Room 1111, IAB
New York, NY  10027
Tel: 212/854-3676
Fax: 212/854-8059
E-Mail: rhc2@columbia.edu
AB  - 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.
ER  -