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Exchange rate pass-through and credit constraints

  • Strasser, Georg

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.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 1 ()
Pages: 25-38

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Handle: RePEc:eee:moneco:v:60:y:2013:i:1:p:25-38
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