(Un)Competitive Devaluations and Firm Dynamics

Alexander Rodnyansky

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper studies monetary and exchange rate policy in a world of global value chains. Using recent microdata from Japan and Russia, devaluations are shown to negatively affect exporters in terms of employment, domestic revenue and profitability relative to nonexporting firms. Given their substantial dependence on imported intermediate inputs, exporting firms are more exposed to marginal cost shocks following exchange rate movements. Standard macro models are too simplistic in their microstructure to capture these transmission channels. I propose a New Keynesian general equilibrium model with firm heterogeneity, varying intermediate import intensities, and international dollar pricing to explain the findings. Strategic complementarities improve the quantitative performance of the model without changing its qualitative properties. The new paradigm is successful in matching key firm-level moments as well as the evolution of inflation and net exports.

JEL-codes: E52 E65 F23 F31 F41 F42 G32 (search for similar items in EconPapers)
Date: 2018-12-15
Note: ar908
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1888

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