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Advanced Economic Seminars 221: Firms’ Heterogeneity, Demand Accumulating, and Exchange Rate Pass-Through

Publisher:   Time:2018-11-28 14:10:04

Topic: Firms’ Heterogeneity, Demand Accumulating, and Exchange Rate Pass-Through

Lecturer: Tan You, Associate Professor, Nanjing University of Finance and Economics

Time: 10:00-12:00 a.m. 20th of September 2018Thursday

Venue:B423, Zhixin Building

Abstract: In this paper, we study how the export behaviors of new and incumbent exporters differentially respond to exchange rate shocks. We establish a dynamic model, in which new exporters strategically charge a lower price than incumbent exporters in order to grow their customer base and increase future sales. The model predicts that new exporters adjust their price more aggressively relative to their incumbent counterparts in response to exchange rate fluctuations. Meanwhile, export quantities of new exporters change less than that of incumbent exporters in response to exchange rate shocks. Using a transaction-level dataset containing all Chinese exporters during the 2000-2009 period, we find supporting evidence for the model’s predictions: new exporters adjust their price 1.5 times more than incumbent exporters. This, in turn, results in export quantities being less responsive to exchange rate shocks among new exporters. The result holds for a series of robustness checks. The findings imply that there are different degrees of exchange rate pass-through among new and incumbent exporters.

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