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To What Extent Can Czech Exporters Cushion Exchange Rate Shocks through Imported Inputs?

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  • Peter Tóth

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Abstract

This paper examines the role of imported inputs in cushioning exchange rate shocks by using a partial equilibrium model of heterogeneous firms. Producers in the model can serve the domestic market, export final goods, import inputs or engage in both exporting and importing. In the model, an exogenous exchange rate shock simultaneously affects the variable costs and revenues associated with exports and imports. The impact of a hypothetical 1% appreciation of the domestic currency on sales is estimated using a panel of 7,356 Czech manufacturing firms observed from 2003 to 2006. We focus on the above period to exploit the rich within-firm variation in trade strategies. This variation is likely to be associated with the lifting of trade barriers following the Czech Republic’s EU accession in 2004. For firms that both export and import, the model predicts a drop in export sales of 0.8% as opposed to a 1% drop for price-taker exporters who do not use imported inputs.

Suggested Citation

  • Peter Tóth, 2014. "To What Extent Can Czech Exporters Cushion Exchange Rate Shocks through Imported Inputs?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 74-93.
    • Handle: RePEc:onb:oenbfi:y:2014:i:3:b:4
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    References listed on IDEAS

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    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
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    4. Kasahara, Hiroyuki & Lapham, Beverly, 2013. "Productivity and the decision to import and export: Theory and evidence," Journal of International Economics, Elsevier, vol. 89(2), pages 297-316.
    5. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, vol. 87(1), pages 106-118, August.
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    11. Vlastimil Cadek & Helena Rottova & Branislav Saxa, 2011. "Hedging Behaviour of Czech Exporting Firms," Working Papers 2011/14, Czech National Bank.
    12. Baniak, Andrzej & Philips, Louis, 1995. "La Pleiade and exchange rate pass-through," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 195-211.
    13. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
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    More about this item

    Keywords

    Exchange rate pass-through; international trade; heterogeneous firms; monopolistic competition; total factor productivity; production function;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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