ABSTRACT
During the last two decades or so many countries have experienced considerable fluctuations in real exchange rates. The appreciation of the U.S. dollar in the early 1980s, followed by its decline since the meeting of G-5 nations in 1985, has generated debates concerning the effects of exchange rate fluctuations on the U.S. manufacturing sector. A number of economists (among others, Marris, 1985; Branson and Love, 1988) have found that appreciation of the real exchange rate has played an important role in “deindustrializing” the U.S. economy. In contrast, Glick and Hutchison (1990) find no significant negative relation between appreciation of the real exchange rate and output growth in tradable sectors of the U.S. economy. They further argue that the relation between movements in the real exchange rate and the sectoral composition of output is unstable over time and varies with underlying monetary and fiscal variables.
