Nominal Exchange Rate Patterns: Correlationswith Entry, Exit, and Invesment in U.S. Industry
35 Pages Posted: 17 Oct 2007
Date Written: January 1990
The view that the strength of the dollar in the early 1980s was associated with persistent restructuring of United States industry is supported by correlations between exchange rate patterns and data on business formation, business failure and sectoral investment in new plant and equipment. Short term trend depreciations of the dollar are associated with reallocation of resources across sectors, while longer term trend depreciations are associated with investment expansions in many sectors of industry. Persistent exchange rate volatility is strongly associated with investment contractions, with this effect weakest during depreciation periods. This suggests a second order effect of depreciation trends: during trend depreciation periods the negative and significant correlation between exchange rate volatility and investment is reduced.
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