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Exchange Rate Fluctuations, Financing Constraints, Hedging, and Exports: Evidence from Firm Level Data

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  • Dekle, Robert
  • Ryoo, Heajin

Abstract

An important puzzle in international macroeconomics is the exchange rate disconnect puzzle. Nominal exchange rates seem to be unrelated to other macroeconomic variables, for example, export quantities. This paper uses Japanese firm level data to examine whether exchange rate fluctuations are strongly related to the export quantities of firms. We build a simultaneous nonlinear structural model with external financing costs, and estimate the model on 14 separate Japanese 4 digit level industries. We find that export volumes at the firm level are significantly affected by exchange rate fluctuations. We find higher elasticities of exports with respect to exchange rates than in previous work. Our results cast some doubt on the prevailing wisdom that exchange rates have no effect on trade. Finally, we find in our data that financing constraints play an important role in affecting the sensitivity of exports to exchange rate fluctuations. Firms that are less financially constrained -for example, keiretsu firms- tend to have lower exchange rate elasticities, which is consistent with our model.

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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2003-13.

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Length: 45 p.
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:hit:hitcei:2003-13

Note: November 2002
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Cited by:
  1. Sarah Guillou & Stefano Schiavo, 2011. "Exchange rate exposure under liquidity constraints," Sciences Po publications 2011-13, Sciences Po.
  2. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
  3. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h561m4g1g is not listed on IDEAS
  4. Aaditya Mattoo & Arvind Subramanian, 2011. "A China Round of Multilateral Trade Negotiations," Working Paper Series WP11-22, Peterson Institute for International Economics.
  5. Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.
  6. Georg H. Strasser, 2011. "Exchange Rate Pass-Through and Credit Constraints: Firms Price to Market as Long as They Can," Boston College Working Papers in Economics 788, Boston College Department of Economics, revised 13 Feb 2012.

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