Multi-Product Firms and Exchange Rate Fluctuations
54 Pages Posted: 30 Apr 2012
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: Suggested Citation
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