Quality, Trade, and Exchange Rate Pass-Through

59 Pages Posted: 10 Apr 2014

See all articles by Natalie Chen

Natalie Chen

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Luciana Juvenal

University of Warwick - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

This paper investigates theoretically and empirically the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. Our 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 the proposed theory using a highly disaggregated Argentinean firm-level wine export dataset between 2002 and 2009 combined with experts wine rankings as a measure of quality. The model predictions find strong support in the data and the results are robust to different measures of quality, samples, specifications, and to the potential endogeneity of quality.

Keywords: Exchange rates, Agricultural exports, Producer prices, Real effective exchange rates, External shocks, Economic models, Exchage rate pass-through, pricing-to-market, quality, unit values, firms, real exchange rate, exchange rate pass, exchange rate changes, exchange rate fluctuations, real exchange rate changes, nominal exchange rate, real exchange rate fluctuations, real exchange rates, exchange rate shocks, nominal exchange rates, fixed exchange rate, home currency, exchange rate policy, exchange rate dynamics, fixed exchange rate regime, fixed exchange rate system, currency values, endogenous exchange rate, foreign exchange, average real exchange rate, dollar exchange rate, exchange rate

JEL Classification: F12, F14, F31

Suggested Citation

Chen, Natalie and Juvenal, Luciana, Quality, Trade, and Exchange Rate Pass-Through (March 2014). IMF Working Paper No. 14/42, Available at SSRN: https://ssrn.com/abstract=2423238

Natalie Chen (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 8419 (Phone)
+44 24 7652 3032 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luciana Juvenal

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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