Exporter Price Response to Exchange Rate Changes

Abstract:     
Firms exporting to foreign markets face a particular challenge: to price their exports in a foreign market when the exchange rate changes. This paper takes on pricing-to-market using a unique data set that covers firm level monthly trade at great detail. As opposed to annual trade flows, monthly trade flows bring us closer to the transaction level where firm decisions are actually made. I find that the utilization of monthly data does add new information about the average level of pricing-to-market, and the differences between long-run pricing-to-market and short-run pricing-to-market. Furthermore, I find industry differences in pricing-to-market in terms of the magnitude (zero to complete pricing-to-market) and the timing (when do firms changes prices), and that pricing-to-market is stronger on high-income markets. As discussed in detail in the paper, all results are in-line with predictions of several theoretical contributions to the literature on pricing-to-market and exchange rate pass-through.

Number of Pages in PDF File: 24

Keywords: pricing-to-market, heterogeneous exporters, monthly firm level trade data

JEL Classification: F14, F31, L11

working papers series