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