Quality, Trade, and Exchange Rate Pass-Through
59 Pages Posted: 10 Apr 2014
There are 2 versions of this paper
Quality, Trade, and Exchange Rate Pass-Through
Quality, Trade, and Exchange Rate Pass-Through
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: Suggested Citation