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Multi-Product Firms and Exchange Rate Fluctuations

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Author Info

  • Arpita Chatterjee

    ()
    (School of Economics, University of New South Wales)

  • Rafael Dix-Carneiro

    ()
    (University of Maryland)

  • Jade Vichyanond

    ()
    (International Monetary Fund)

Abstract

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how rms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specic marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specic and product-specic export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-29.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-29.

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Length: 54 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:swe:wpaper:2012-29

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Related research

Keywords: Multi-product firms; exchange rate pass-through; product ladder; local distribution costs.;

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Cited by:
  1. Marc Auboin & Michele Ruta, 2012. "The Relationship between Exchange Rates and International Trade: A Literature Review," CESifo Working Paper Series 3868, CESifo Group Munich.
  2. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2013. "Price Setting with Customer Retention," EIEF Working Papers Series 1328, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2013.
  3. Juan Marchetti & Michele Ruta & Robert Teh, 2012. "Trade Imbalances and Multilateral Trade Cooperation," CESifo Working Paper Series 4050, CESifo Group Munich.
  4. Raphael A. Auer & Thomas Chaney & Philip Sauré, 2012. "Quality pricing-to-market," Globalization and Monetary Policy Institute Working Paper 125, Federal Reserve Bank of Dallas.
  5. Raphael A. Auer & Raphael S. Schoenle, 2012. "Market structure and exchange rate pass-through," Globalization and Monetary Policy Institute Working Paper 130, Federal Reserve Bank of Dallas.
  6. Ma, Debin & Yuan, Weipeng, 2013. "Discovering Chinese Economic History from Footnotes: the Living Tale of a Private Merchant Archive (1800-1850)," CAGE Online Working Paper Series 164, Competitive Advantage in the Global Economy (CAGE).
  7. Raphael Schoenle & Raphael Auer, 2012. "Market Structure and Pass-Through," 2012 Meeting Papers 61, Society for Economic Dynamics.

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