This study delves into the non-linear relationship between exchange rate fluctuations and U.S. industrial production, offering a nuanced understanding of how currency value changes impact the industrial sector. Traditional economic models often assume linear effects, overlooking the complexities inherent in real-world data. This research employs advanced econometric techniques to uncover non-linear patterns that better reflect the actual dynamics between exchange rates and industrial output. By utilizing threshold regression models and non-linear time series analysis, the study identifies critical points where exchange rate changes exert disproportionately large or small effects on industrial production. The findings reveal that while small fluctuations in exchange rates have minimal impact on U.S. industrial production, significant deviations trigger substantial changes in output, often with delayed effects. This asymmetry suggests that industries are more sensitive to extreme exchange rate movements, which can lead to pronounced shifts in production levels. Additionally, the research highlights sector-specific responses, indicating that the impact of exchange rate changes varies across different industries, depending on their exposure to international markets and currency risk. These insights are crucial for policymakers and business leaders as they navigate the complexities of global trade and investment. The study contributes to a deeper understanding of the interaction between exchange rates and industrial performance, emphasizing the need for tailored strategies to manage currency risk and its implications for economic stability and growth.

Non-linear relationship, Exchange rates, Economic impact

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