Exporters’ Reactions to Movements in Exchange Rates: Firm-level Evidence
(English)Manuscript (preprint) (Other academic)
This paper analyzes the potential reactions of exporting firms to movements in exchange rates using detailed firm-product level panel data from Sweden covering the period 1997 to 2007. This is done focusing on firms’ decisions regarding export price and quantity as well as entry and exit decisions at the firm and product levels. Moreover, an attempt is made to explain the (incomplete) pass-through of exchange rate changes into import prices using the roles of firm heterogeneities as well as product- and country-level characteristics. The results indicate that Swedish exporters practice a pricing to market strategy, the implied exchange rate pass-through (ERPT) to the local currency price of imports being 84-85 percent. Using non-parametric techniques as well as product-level efficiency measures, the paper finds evidence to support theoretical predictions that the rate of ERPT is declining with increases in productivity/efficiency. Moreover, the paper also shows that firms’ tendency to increase their export price in response to a depreciation of the firm-specific exchange rate increases with their reliance on imports of intermediate inputs. Finally, the results in this paper show the significant role of movements in exchange rates in firms’ extensive margin decisions.
Exchange Rates, Exports, Exchange Rate Pass-through
Research subject Economics
IdentifiersURN: urn:nbn:se:su:diva-136991OAI: oai:DiVA.org:su-136991DiVA: diva2:1058190