Forward-Looking Exporters and Exchange Rate Pass-Through: A Micro-Level Investigation

38 Pages Posted: 10 Jul 2015

See all articles by Yao Amber Li

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies)

Chen Zhao

Hong Kong University of Science & Technology (HKUST)

Date Written: July 10, 2015

Abstract

This paper shows that the pricing behavior of exporting firms exhibits a “forward-looking” nature under sticky prices. It offers a channel by which the expectations of future exchange rates affect current prices. To seek the micro-level evidence, we adopt detailed product-level import data of the United States and firm-product-level export data of China combined with forward premiums to study the exchange rate pass-through. We find that not only current (and past) exchange rate fluctuations but also anticipated future exchange rate changes effectively pass through into current prices, suggesting a potentially important factor in help explaining incomplete exchange rate pass-through.

Keywords: Forward-looking, Price adjustment, Exchange rate pass-through, Sticky price

JEL Classification: F31, F14, F4

Suggested Citation

Li, Yao Amber and Zhao, Chen, Forward-Looking Exporters and Exchange Rate Pass-Through: A Micro-Level Investigation (July 10, 2015). HKUST IEMS Working Paper No. 2015-28, Available at SSRN: https://ssrn.com/abstract=2629082 or http://dx.doi.org/10.2139/ssrn.2629082

Yao Amber Li (Contact Author)

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies) ( email )

Department of Economics, Hong Kong U of Sci&Tech
Clear Water Bay, Kowloon, Hong Kong SAR, China
Kowloon
Hong Kong

HOME PAGE: http://yaoli.people.ust.hk/

Chen Zhao

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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