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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 H.

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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  • Dekle, Robert & Ryoo, Heajin H., 2007. "Exchange rate fluctuations, financing constraints, hedging, and exports: Evidence from firm level data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(5), pages 437-451, December.
  • Handle: RePEc:eee:intfin:v:17:y:2007:i:5:p:437-451
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    Cited by:

    1. Sarah Guillou & Stefano Schiavo, 2014. "Exchange rate exposure under liquidity constraints," Industrial and Corporate Change, Oxford University Press, pages 1541-1561.
    2. Bo Tang, 2015. "Exchange Rate Exposure of Chinese Firms at the Industry and Firm Level," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 592-607, August.
    3. repec:ecb:ecbwps:20141801 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. Ezeanyeji Clement I. & Onwuteaka Ifeoma. C., 2016. "Determinants of Exchange Rate Sensitivity on the Nigerian Manufacturing Sector," Economy, Asian Online Journal Publishing Group, vol. 3(1), pages 40-50.
    6. Bin Qiu & Kuntal K. Das & W. Robert Reed, 2016. "The Effect of Exchange Rates on Chinese Trade: A Dual Margin Approach," Working Papers in Economics 16/17, University of Canterbury, Department of Economics and Finance.
    7. Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.
    8. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    9. Tunç, Cengiz & Solakoglu, M. Nihat, 2016. "Does exchange rate volatility matter for international sales? Evidence from US firm level data," Economics Letters, Elsevier, vol. 149(C), pages 152-156.
    10. repec:kap:sbusec:v:49:y:2017:i:3:d:10.1007_s11187-017-9849-7 is not listed on IDEAS
    11. repec:eee:reveco:v:51:y:2017:i:c:p:417-430 is not listed on IDEAS
    12. Cueyt SEVIM & Taylan Taner DOGAN, 2016. "Turkiye Ekonomisinde Ihracat ve Doviz Kuru Oynakligi Iliskisi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 16(2), pages 303-318.
    13. Song, Sangcheol & Lee, Seung-Hyun & Makhija, Mona, 2015. "Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries," Journal of World Business, Elsevier, vol. 50(3), pages 548-557.
    14. Pasrun Adam & Pasrun Adam & Rosnawintang Rosnawintang & Ambo Wonua Nusantara & Abd Aziz Muthalib, 2017. "A Model of the Dynamic of the Relationship between Exchange Rate and Indonesia’s Export," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 255-261.
    15. Abu Hatab, Assem & Hess, Sebastian, 2013. "Opportunities and Constraints for Small Agricultural Exporters in Egypt," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 16(4).
    16. di Mauro, Filippo & Demian, Calin-Vlad, 2015. "The exchange rate, asymmetric shocks and asymmetric distributions," Working Paper Series 1801, European Central Bank.
    17. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h561m4g1g is not listed on IDEAS
    18. Kosaka, Michiru Sakane, 2014. "Financial constraints, firm entry, and exchange rate pass-through," Economics Letters, Elsevier, vol. 125(1), pages 143-147.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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