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Exchange rate pass-through and credit constraints

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  • Strasser, Georg

Abstract

The macroeconomic evidence of the short-term impact of exchange rates on exports and prices is notoriously weak. This paper examines the microfoundations of this disconnect. I study the response of firms' export and price setting decisions to fluctuations in exchange rates and credit conditions using firm-level survey data. Financially constrained firms pass through exchange rate changes to prices at almost twice the rate of unconstrained firms. Similarly, their export volumes are about twice as sensitive to exchange rate fluctuations. The effect of borrowing constraints is particularly strong during the recent financial crisis.

Suggested Citation

  • Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.
    • Handle: RePEc:eee:moneco:v:60:y:2013:i:1:p:25-38
    DOI: 10.1016/j.jmoneco.2012.10.013
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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