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Exchange-Rate Regimes and the Behaviour of Exporters

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This paper proposes a firm-level mechanism that explains why exchange-rate regimes are largely neutral with respect to real macro variables: exporters actively adjust marginal costs and markups to absorb nominal exchange-rate fluctuations. Me quantify this mechanism using micro-level data from the European car market (1970–99). Me show that floating regimes are associated with limited adjustment in destination-currency prices and limited response in quantities sold. Me then estimate a structural demand-and-supply system to recover product-level markups and marginal costs. At breaks from pegged to floating regimes, producer-currency markups (marginal costs) fall on impact by around 11% (10%). A two-country real business cycle model with segmented financial markets, incorporating pricing-to-market and operational hedging, rationalises these patterns. Our model underscores the role of real micro rigidities, rather than nominal rigidities, in the weak transmission of exchange-rate fluctuations to real macro variables

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  • Cosimo Petracchi & Luca Riva & Marco S. Petterson, 2026. "Exchange-Rate Regimes and the Behaviour of Exporters," CEIS Research Paper 627, Tor Vergata University, CEIS, revised 06 Aug 2026.
    • Handle: RePEc:rtv:ceisrp:627
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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