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Multi-Product Firms and Exchange Rate Fluctuations

Author

Listed:
  • Arpita Chatterjee

    (School of Economics, University of New South Wales)

  • Rafael Dix-Carneiro

    (University of Maryland)

  • Jade Vichyanond

    (International Monetary Fund)

Abstract

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how rms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specic marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specic and product-specic export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations.

Suggested Citation

  • 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.
    • Handle: RePEc:swe:wpaper:2012-29
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-29.pdf
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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