Multi-Product Firms and Exchange Rate Fluctuations

54 Pages Posted: 30 Apr 2012

See all articles by Arpita Chatterjee

Arpita Chatterjee

UNSW Australia Business School, School of Economics

Rafael Dix-Carneiro

Duke University

Jade Vichyanond

International Monetary Fund (IMF)

Date Written: January 19, 2012

Abstract

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

Keywords: Multi-product firms, exchange rate pass-through, product ladder, local distribution costs

JEL Classification: F12, F41

Suggested Citation

Chatterjee, Arpita and Dix-Carneiro, Rafael and Vichyanond, Jade, Multi-Product Firms and Exchange Rate Fluctuations (January 19, 2012). UNSW Australian School of Business Research Paper No. 2012-29, Available at SSRN: https://ssrn.com/abstract=2045226 or http://dx.doi.org/10.2139/ssrn.2045226

Arpita Chatterjee (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Rafael Dix-Carneiro

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Jade Vichyanond

International Monetary Fund (IMF) ( email )

Washington, D.C., DC
United States

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