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Importers, Exporters, and Exchange Rate Disconnect

  • Mary Amiti
  • Oleg Itskhoki
  • Jozef Konings

Large exporters are simultaneously large importers. We show that this pattern is key to understanding low aggregate exchange rate pass-through as well as the variation in pass-through across exporters. We develop a theoretical framework with variable markups and imported inputs, which predicts that firms with high import shares and high market shares have low exchange rate pass-through. We test and quantify the theoretical mechanism using Belgian firm-product-level data on imports and exports. Small nonimporting firms have nearly complete pass-through, while large import-intensive exporters have pass-through around 50 percent, with the marginal cost and markup channels contributing roughly equally.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 7 (July)
Pages: 1942-78

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:7:p:1942-78
Note: DOI: 10.1257/aer.104.7.1942
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