dollar depreciation and us industry performance abstract this study analyzes the effects of the real exchange rate and the real interest rate on domestic sales exports and imports for 19 manufacturing industries and selected non merchandise sectors in the usa the estimates are combined with a simulation of an exogenous dollar depreciation to infer net industry effects of a non policy induced drop in the value of the dollar the results indicate that the direct impacts of the depreciation are concentrated in net exports with only limited effects on home sales hoewver the indirect effects of the depreciation which work through the domestic interest rate and foreign and domestic income and prices have a significant impact on domestic sales as well as net trade in both merchandise and non merchandise sectors

operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

firm valuation earnings expectations and the exchange rate exposure effect consistent with previous research we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar we investigate the possibility that this failure is due to mispricing lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms suggesting that mispricing does occur a simple trading strategy based upon these results generates significant abnormal returns corroborating evidence from returns around earnings announcements as well as errors in analysts forecasts of earnings is also provided it is a widely held view that exchange rate movement should affect the value of a firm standard economic analysis implies that the profitability and value of most u s firms with foreign sales or operations abroad should increase decrease with an unexpected depreciation appreciation of the dollar as expected foreign currency cash flows translate into larger smaller u s

a leviathan central bank modeling seigniorage in a money search model this paper studies the nature of optimal monetary policy under a utility maximizing monetary authority in a micro founded model of money based on lagos and wright 2005 such a monetary authority represents a monopoly private money supplier or situations where fiscal policy drives monetary policy and hence the name leviathan under no commitment i characterize an equilibrium with reputation concerns the centralized market interaction is modeled as an infinitely repeated game between the leviathan monetary authority a large player and the economic agents small players where the size of the players refers to the ability to influence aggregate outcomes this large small player dynamics pins down the equilibrium set of payoffs under the assumption that agents do not refuse to use money purely for coordination reasons the one shot game has a unique nash equilibrium with maximum inflation tax the set of equilibria is considerably enlarged in the infinite repetition of the game and equilibria with a lower inflation tax can also be supported by providing appropriate incentives to the money supplier

firm level effects of asymmetric intervention in foreign exchange markets evidence from the swiss currency floor in january 2015 the swiss national bank snb abandoned the swiss franc s exchange rate floor against the euro this paper is the first to study the firm level effects of this asymmetric type of central bank intervention in foreign exchange markets using weekly stock returns for a sample of swiss non financial firms i find significant reductions in total stock return volatility as well as market risk following the introduction of the currency floor accounting for the asymmetric nature of the intervention i show that the enforcement of this policy solely manifests in a significant reduction of incremental eur chf exchange rate risk exposures of exporting firms while importing firms experience reductions in proportion to the market portfolio only thus the asymmetric policy design is reflected in asymmetric responses of firm level currency exposures all effects however do not depend on the extent of business activity in the eurozone the overall results suggest that the currency floor was successful in supporting the performance of the swiss economy by effectively reducing stock return sensitivities to market fluctuations and eur chf exchange rate volatility

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

subsidiary expansion contraction during times of economic crisis this paper compares two real options within country growth and across country operational flexibility to examine subsidiary expansion contraction during times of economic crisis specifically we examine how the real options orientations of individual subsidiaries interact with the general characteristics of multinational enterprise networks our main findings are that a economic crises can be detrimental for subsidiaries with stronger within country orientations and advantageous for those with stronger across country orientations and b network characteristics are not the sole determinants of subsidiary expansion contraction what really matters is how the real options orientations of individual subsidiaries mesh with the overall characteristics of the network they belong to

multinational investment under uncertainty in the chemical processing industries this study uses a sample of chemical processing industries to evaluate the effect of two types of uncertainty on the decision to invest in an industry it analyzes the effects of relative price uncertainty through exchange rates and input prices and demand uncertainty on the probability of expansion in a particular country the study then focuses on the behavior of individual companies and distinguishes companies by whether or not they are multinationals in the production of the product the results confirm previous evidence that exchange rate uncertainty has a negative effect on capacity expansions by domestic corporations and no effect on investment by multinational corporations finally the study also shows that expansions of production capacity in this industry are more likely to occur in those countries where capacity utilization is higher

exchange rate exposure and industry characteristics evidence from canada japan and the usa abstract this paper examines industry level exchange rate exposures for canada japan and the usa measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns some industries in all three countries display significant exposures moreover for each country the exchange rate is important for explaining industry returns at the economy wide level to explore whether exchange rate exposures are systematically linked to the activities of the industries we model exposure as a function of industry characteristics for all three countries the relation between exposure and industry characteristics is broadly consistent with economic theory jel f3

real options theory in international business the last quarter century has witnessed substantial growth in applications of real options theory rot to international business ib research in this review we explicate the core rot concepts in the ib context and discuss the contributions of rot based research to three core ib issues timing and scale of market entry or exit entry mode and governance form and the role of multinational networks based on our review we propose a holistic rot view of the multinational enterprise that synthesizes the insights of existing studies finally to move the field forward we highlight key questions and challenges in current rot based work provide a more precise definition of exogenous and endogenous uncertainty suggest empirical designs to test unique rot predictions and explore areas where rot can be combined with other theoretical perspectives to better understand ib phenomena

on the growth of foreign affiliates multinational plant networks joint ventures and flexibility we take a flexibility perspective to analyse employment growth in a large sample of japanese manufacturing affiliates in nine asian countries during the years leading up to and into the asian financial crisis 1995 1999 we find that joint ventures are less flexible than wholly owned affiliates in responding to changing environmental conditions in the focal country and underperform in high growth environments multinational enterprises mnes use the flexibility created by their multinational plant network to adjust affiliate employment in response to labour cost changes in other countries in which they operate plants however no evidence was found that the presence of joint ventures in multinational plant networks reduces this network flexibility our findings suggest that more research is needed on the heterogeneous responses of mnes and their affiliates to changing economic environments

economic exposure and integrated risk management most corporate risk management research focuses on particular risk exposures to the exclusion of other interrelated exposures by contrast this study models corporate risk exposures using a multivariate approach integrating the distinct exposures of interest to finance international business and strategy researchers the paper addresses the implications of multivariate modeling for corporate risk management some key methodological issues arising in empirical estimation of corporate economic exposures and directions for research on integrated risk management 1998 john wiley sons ltd

exchange rate changes and the distribution of industry value this article investigates the simple widely held hypothesis that an exogenous real home currency depreciation enhances the competitiveness of home country manufacturers vis a vis foreign rivals the study associates changes in competitiveness with redistributions of value within an industry daily and weekly data on redistributions of value are obtained from world financial markets the study estimates the relationship between changes in exchange rates and redistributions of value within the world automobile and steel industries during the period 1978 87 the data generally do not support the notion that firms benefit competitively from a depreciation of the home currency on the contrary for large fractions of both industries a depreciation of the home currency is associated with a significant decline in their share of industry value

the exchange rate exposure of a global competitor this paper analyzes the exposure of operating cash flows to an exogenous exchange rate change for a firm operating internationally as a multimarket oligopolist i e a global competitor and facing demand that depends in a general way on the exchange rate it is shown that exposure is the sum of a base case exposure identified in other studies and two other components terms associated with exchange rate induced demand shifts and terms associated with competitors s reoptimization following the exchange rate shock in general the magnitudes of these additional terms are significant especially in the presence of asymmetries across markets and firms numerical examples are provided that incorporate asymmetries corresponding to stylized facts about some u s markets and u s manufacturers

firm strategy and economic exposure to foreign exchange rate movements this study examines the implications of differences in strategy and industry structure for firms economic exposures to foreign exchange rate movements in contrast with previous research using a single currency proxy this study estimates firms exposures using a multiple currency model the empirical evidence from u s manufacturing firms indicates that 13 to 17 percent of firms are exposed to foreign exchange rate movements results from cross sectional analyses reveal that foreign direct investment reduces economic exposure to foreign exchange rate movements

model evaluation based on residual analysis of two similar models models that may appear to have different properties may in fact produce residuals that differ only in subtle ways by analysing the relationships between model residuals the problems in distinguishing between models can perhaps be discovered as illustrated by the econometric examples considered regressing residuals gives the long memory residual which is the difference between two models but this difference is very subtle and deeply hidden which explains why the traditional standard technique does not find this difference

the share price reaction of u k exporters to exchange rate movements an empirical study contrary to prior research this u k based study finds a contemporaneous relation between the foreign exchange rate and the market value of large exporters we also find a weak lagged relationship which suggests that the stock market takes time to incorporate all of the implications of foreign currency movements into share prices evidence that the nature of this relationship changed when sterling was in the erm is also provided

the pricing of interest rate risk evidence from the stock market this paper addresses the issue of whether firms are required to pay an ex ante premium to investors for bearing the risk of interest rate changes a two factor apt model with the market and changes in the yield on long term government bonds as factors is employed the paper shows that empirically most of the interest sensitive stocks are in the utility industries and that there is reasonable evidence that the interest factor is priced in the sense of the apt several sources for the interest sensitivity are considered and regulatory lags are focused on as a likely candidate some firms exhibit ex post sensitivity in their stock returns to unanticipated changes in interest rates are these firms required to pay investors ex ante for bearing this risk of interest rate changes the framework for examining pricing of unanticipated interest rate changes is a two factor apt model with the market and changes in the yield on long term government bonds as factors the issue is whether the interest rate change premium is significant to study this the paper uses full information maximum likelihood fiml estimation on groups of twenty five individual firms with both cross equation constraints and withinequation nonlinear constraints on the parameters as mandated by the apt model whether the risk of unanticipated changes in interest rates is priced in the market is of particular interest with regard to regulated firms regulated firms especially electric utilities turn out to comprise the big majority of firms that are sensitive to unanticipated interest rate changes after some preliminary investigation the analysis focuses on electric utilities much empirical work on the apt relies on factor analysis e g roll and ross 30 bower bower and logue 5 use factor analysis in comparing the apt and the capm to explain utilities returns the present paper however uses observable variables at the macro level chan chen and hsieh cch 7 and chen roll and ross crr 8 also examine apt models with specific macroeconomic factors cch and crr use a traditional fama macbeth type of cross sectional estimation approach in the premia calculations rather than a fiml approach gibbons and stambaugh have applied fiml techniques to models using only the market as an explanatory variable gibbons 20 used a noniterative algorithm on portfolios of firms equivalent to a two step cross sectional approach stam

exchange rate pass through when market share matters the authors investigate the pass through from exchange rates to import prices when firms future demands depend on their current market shares they show that profit maximizing foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily i e the pass through may be perverse and that current import prices may be more sensitive to expected future exchange rates than to current exchange rates they present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling recent behavior of u s import prices copyright 1989 by american economic association

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

foreign exchange risk management practices and products used by australian firms this industry wide cross sectional study concentrates on recent foreign exchange risk management practice and product usage of large australian based firms results are discussed from an empirical field study of seventy two firms operating in australia based on a statistical analysis of five firm specific variables with six management practice variables conclusions are drawn on the foreign exchange risk management practices and financial product usage of firms operating in australia

exposure to exchange rate movements abstract this paper suggests an approach to measuring a firm s exposure which depends on the stochastic relationship between the firm s real rate of return and exchange rate movements using a simplified two country model exposure is shown to depend on the extent to which individual asset prices adjust with exchange rates the distribution of such adjustments between countries and the relationship between domestic inflation and exchange rate movements while the distribution of real and nominal positions across countries is also a determinant of exposure it is shown that purely domestic firms no foreign assets or liabilities will typically be exposed

asymmetric corporate exposures to foreign exchange rate changes research examining firms economic exposures to exchange rate movements has not differentiated periods of foreign currency appreciation and depreciation when estimating exposure coefficients recent theoretical developments regarding real options and pricing to market suggest corporate exposures may be asymmetric i e the financial performance impact of a foreign currency appreciation may not be offset by the currency s depreciation our empirical analysis indicates that for the small percentage of u s manufacturing firms exposed to currency appreciations or depreciations their exposures are asymmetric 1998 john wiley sons ltd