Working Paper: NBER ID: w3249
Authors: Linda Goldberg
Abstract: 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.
Keywords: Nominal Exchange Rates; US Industry; Investment; Business Formation; Business Failure
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strength of the dollar (F31) | persistent restructuring in U.S. industry (L16) |
| short-term trend depreciations of the dollar (F31) | reallocation of resources across sectors (O14) |
| longer-term trend depreciations of the dollar (F31) | investment expansions in various industrial sectors (L52) |
| persistent exchange rate volatility (F31) | investment contractions (E22) |
| persistent exchange rate volatility (F31) | investment contractions (weakest during periods of depreciation) (E22) |