The path of the dollar has significantly influenced investment activit
y in U.S. industry. The effects of both exchange rate levels and excha
nge rate volatility have been more pronounced in the 1980s than in the
1970s. Although aggregate investment data mask some of these relation
ships, the effects of exchange rates on investment are most pronounced
in the disaggregated data for manufacturing durable goods sectors and
nonmanufacturing sectors. These relationships also have changed over
time, In contrast to the conventional wisdom, in the 1980s real dollar
depreciations (appreciations) were likely to be associated with inves
tment contractions (expansions).