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The link between the value of the dollar, U.S. trade and manufacturing output: some recent evidence



The Link Between the Value of the Dollar, U.S. Trade and Manufacturing Output: Some Recent Evidence 24 John it Tatom John A. Tatom is an assistant vice president at the Federal Re- serve Bank of St. Louis. Anne M. Grubish and Kevin L. Kliesen provided research assistance. The Link Between the Value of the Dollar, U.S. Trade and Manufacturing Output: Some Recent Evidence HSERVEHS widely believe tluat the decline inn tine doliar-’s value agairusf foreign cum-renncies, winicin began inn 1935, inas hoosfed US, manuufacfun-irig output significannfh’. ‘line dollar’s declinue was ex- pected to 1-aise tine dollar pm-ices of U.S. innnpor-fs winile inn~’em-inngthe fon-eigmn—curn-emncv pr-ices of f/S. expom-ts; inn n-espornse, fhe quantify dennnannded of both t~I5. expom-fs annd innpot’t—cornrpetitng goods would rise, This demnnamnd—based iimnkage has been cenifn-al to amnalvses of [noUn fine imufer-muational and donnnesfic en:onnomic pr-ospects nnf tluis nnationu sinuce inn finis decade. The emnnplnasis omn ann imu\’er-se r-elationn— ship betweenn [1,5, nnutput annd tine value of the dol- lar- becannne pI-eennnimnennf fr-onnn 19Sf) to eat-I 1985, winenu tine doiiat-’s value rose drannnaticaiiv amnd winein a lnistorncallv far-ge fm-ade deficit emerged. ‘[‘he t-elevanuce of fluis iriver-se r-elatiumnship, mow— evel-, tests omn a fainifv assumptionu, irnnplicif irn sucin amualvses is flue view that changes in flue value of fine dollar ar-c independent of US, indusfr-ial devel— opnniennts r-ather nluann beinug caused by tinose ~‘en-v charuges. Winen econnonuric polin:v hoosfs nut- n-efam-ds flue producfive capacity of fIne econnonnv, tine doturi- nannt t’eiatiornsinip befweemn the value of tine dollar and donnestic nnnamuufactut-inng out put should be a posifive orue, so finaf a rise or faiL inn the value nuf the doliam- is associated witln a rise I or fall fin U.S output. This am-fin:le exarnnuues wiiefher the [1.5. produc- finntu of rnnatnufacfured goods inn recemuf \‘eat-s ina

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