IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Quality, Trade, and Exchange Rate Pass-Through

  • Chen, Natalie

    (University of Warwick, CAGE and CEPR)

  • Juvenal, Luciana

    (International Monetary Fund)

This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. We model theoretically the effects of real exchange rate changes on the optimal price and quantity responses of firms that export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. We test empirically the predictions of the model by combining a unique data set of highly disaggregated Argentinean firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we find that firms signifucantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These findings remain robust to different measures of quality, samples, specifications, and to the potential endogeneity of quality.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/165-2013_chen.pdf
Download Restriction: no

Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 165.

as
in new window

Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:cge:wacage:165
Contact details of provider: Postal:
CV4 7AL COVENTRY

Phone: +44 (0) 2476 523202
Fax: +44 (0) 2476 523032
Web page: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mary Amiti & Amit K. Khandelwal, 2009. "Import Competition and Quality Upgrading," NBER Working Papers 15503, National Bureau of Economic Research, Inc.
  2. Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.
  3. Gita Gopinath & Roberto Rigobon, 2008. "Sticky Borders," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 531-575.
  4. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
  5. Michael M. Knetter, 1992. "Exchange Rates and Corporate Pricing Strategies," NBER Working Papers 4151, National Bureau of Economic Research, Inc.
  6. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
  7. Dornbusch, Rudiger, 1989. " Real Exchange Rates and Macroeconomics: A Selective Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 401-32.
  8. Macchiavello, Rocco, 2010. "Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK," CEPR Discussion Papers 7698, C.E.P.R. Discussion Papers.
  9. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  10. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 379-436.
  11. Goldberg, Pinelopi Koujianou & Verboven, Frank, 1998. "The Evolution of Price Dispersion in the European Car Market," CEPR Discussion Papers 2029, C.E.P.R. Discussion Papers.
  12. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8m210prh is not listed on IDEAS
  13. Flora Bellone & Patrick Musso & Lionel Nesta & Frédéric Warzynski, 2016. "International Trade and Firm-Level Markups when Location and Quality Matter," Post-Print halshs-01062918, HAL.
  14. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721 - 765.
  15. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  16. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  17. Kalina Manova & Zhiwei Zhang, 2012. "Multi-Product Firms and Product Quality," NBER Working Papers 18637, National Bureau of Economic Research, Inc.
  18. Jan De Loecker & Frederic Warzynski, 2009. "Markups and firm-level export status," NBER Working Papers 15198, National Bureau of Economic Research, Inc.
  19. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 91-127, January.
  20. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," IEHAS Discussion Papers 0304, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  21. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  22. Michele Bernini & Chiara Tomasi, 2014. "Exchange rate pass-through and product heterogeneity: does quality matter on the import side?," Working Papers 2014020, The University of Sheffield, Department of Economics.
  23. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  24. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2004. "Large Devaluations and the Real Exchange Rate," NBER Working Papers 10986, National Bureau of Economic Research, Inc.
  25. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
  26. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  27. repec:cii:cepiei:2011-q4-128 is not listed on IDEAS
  28. Emi Nakamura & Dawit Zerom, 2009. "Accounting for Incomplete Pass-Through," NBER Working Papers 15255, National Bureau of Economic Research, Inc.
  29. Emi Nakamura & Jón Steinsson, 2009. "Lost in Transit: Product Replacement Bias and Pricing to Market," NBER Working Papers 15359, National Bureau of Economic Research, Inc.
  30. Kugler, Maurice & Verhoogen, Eric A, 2009. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," CEPR Discussion Papers 7119, C.E.P.R. Discussion Papers.
  31. Giancarlo CORSETTI & Luca DEDOLA, 2003. "Macroeconomics of International Price Discrimination," Economics Working Papers ECO2003/20, European University Institute.
  32. Hodgson, Robert T., 2008. "An Examination of Judge Reliability at a major U.S. Wine Competition," Journal of Wine Economics, Cambridge University Press, vol. 3(02), pages 105-113, December.
  33. Oleg Itskhoki, 2013. "Importers, Exporters, and Exchange Rate Disconnect," 2013 Meeting Papers 1130, Society for Economic Dynamics.
  34. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  35. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2007. "Currency Choice and Exchange Rate Pass-through," NBER Working Papers 13432, National Bureau of Economic Research, Inc.
  36. Devashish Mitra & Vitor Trindade, 2003. "Inequality and Trade," NBER Working Papers 10087, National Bureau of Economic Research, Inc.
  37. Thierry Mayer & Marc J. Melitz & Gianmarco I.P. Ottaviano, 2011. "Market Size, Competition, and the Product Mix of Exporters," Development Working Papers 316, Centro Studi Luca d'Agliano, University of Milano.
  38. Juan Carlos Hallak & Jagadeesh Sivadasan, 2010. "Firms' Exporting Behavior under Quality Constraints," Working Papers 99, Universidad de San Andres, Departamento de Economia, revised Mar 2010.
  39. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  40. Matthieu Crozet & Keith Head & Thierry Mayer, 2009. "Quality Sorting and Trade: Firm-Level Evidence for French Wine," Working Papers 2009-14, CEPII research center.
  41. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  42. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  43. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
  44. Raphael Auer & Thomas Chaney & Philip Sauré, 2012. "Quality pricing-to-market," Globalization and Monetary Policy Institute Working Paper 125, Federal Reserve Bank of Dallas.
  45. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, vol. 32(1-2), pages 1-30, February.
  46. Arpita Chatterjee & Rafael Dix-Carneiro & Jade Vichyanond, 2012. "Multi-Product Firms and Exchange Rate Fluctuations," Discussion Papers 2012-29, School of Economics, The University of New South Wales.
  47. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
  48. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  49. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen, 2013. "Trade Liberalization, Quality, and Export Prices," MPRA Paper 51370, University Library of Munich, Germany.
  50. Robert C. Feenstra & James A. Levinsohn, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 19-52.
  51. Antoine Berthou & Charlotte Emlinger, 2011. "The Trade Unit Values Database," Working Papers 2011-10, CEPII research center.
  52. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  53. Zhi Yu, 2013. "Exchange rate pass-through, firm heterogeneity and product quality: a theoretical analysis," Globalization and Monetary Policy Institute Working Paper 141, Federal Reserve Bank of Dallas.
  54. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  55. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  56. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2011. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," NBER Working Papers 17524, National Bureau of Economic Research, Inc.
  57. Bastos, Paulo & Silva, Joana & Verhoogen, Eric A, 2014. "Export Destinations and Input Prices," CEPR Discussion Papers 9985, C.E.P.R. Discussion Papers.
  58. Robert C. Feenstra & John Romalis, 2012. "International Prices and Endogenous Quality," NBER Working Papers 18314, National Bureau of Economic Research, Inc.
  59. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 985-985.
  60. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2013. "Product and process productivity: Implications for quality choice and conditional exporter premia," Journal of International Economics, Elsevier, vol. 91(1), pages 53-67.
  61. Charles Engel, 2002. "Expenditure Switching and Exchange Rate Policy," NBER Working Papers 9016, National Bureau of Economic Research, Inc.
  62. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, Elsevier.
  63. Lourdes Martín & Diego Rodríguez, 2004. "Pricing to market at firm level," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(2), pages 302-320, June.
  64. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  65. Thomas Chaney & Raphael, 2008. "Exchange rate pass-through in a competitive model of pricing-to-market," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  66. Gagnon, Etienne & Mandel, Benjamin R. & Vigfusson, Robert J., 2012. "Missing Import Price Changes and Low Exchange Rate Pass-Through," International Finance Discussion Papers 1040, Board of Governors of the Federal Reserve System (U.S.), revised 12 Dec 2012.
  67. Alberto Cavallo & Brent Neiman & Roberto Rigobon, 2014. "Currency Unions, Product Introductions, and the Real Exchange Rate," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 529-595.
  68. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
  69. repec:cii:cepiei:2011-q4-128-5 is not listed on IDEAS
  70. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 647-678.
  71. Ashenfelter, Orley, 2007. "Predicting the quality and prices of Bordeaux wines," Working Papers 37297, American Association of Wine Economists.
  72. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  73. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
  74. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
  75. Alejandro Artopoulos & Daniel Friel & Juan Carlos Hallak, 2011. "Lifting the Domestic Veil: The Challenges of Exporting Differentiated Goods Across the Development Divide," NBER Working Papers 16947, National Bureau of Economic Research, Inc.
  76. Roberto Basile & Sergio de Nardis & Alessandro Girardi, 2012. "Pricing to market, firm heterogeneity and the role of quality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(4), pages 595-615, December.
  77. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.
  78. José Antonio Rodríguez-López, 2011. "Prices and Exchange Rates: A Theory of Disconnect," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1135-1177.
  79. repec:cii:cepiei:2011-q4-128-9 is not listed on IDEAS
  80. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  81. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
  82. Ramirez, Carlos D., 2008. "Wine Quality, Wine Prices, and the Weather: Is Napa “Different”?," Journal of Wine Economics, Cambridge University Press, vol. 3(02), pages 114-131, December.
  83. Rosario Crinò & Paolo Epifani, 2012. "Productivity, Quality and Export Behaviour," Economic Journal, Royal Economic Society, vol. 122(565), pages 1206-1243, December.
  84. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
  85. Linda S. Goldberg & José Manuel Campa, 2010. "The Sensitivity of the CPI to Exchange Rates: Distribution Margins, Imported Inputs, and Trade Exposure," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 392-407, May.
  86. Quandt, Richard E., 2007. "On Wine Bullshit: Some New Software?," Journal of Wine Economics, Cambridge University Press, vol. 2(02), pages 129-135, September.
  87. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  88. Cavallo, Alberto, 2013. "Online and official price indexes: Measuring Argentina's inflation," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 152-165.
  89. Doireann Fitzgerald & Stefanie Haller, 2014. "Pricing-to-Market: Evidence From Plant-Level Prices," Review of Economic Studies, Oxford University Press, vol. 81(2), pages 761-786.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cge:wacage:165. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Snape)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.