Exchange Rate Shocks and Quality Adjustments

Daniel Goetz and Alexander Rodnyansky

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

Abstract: Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that varies its offerings twice-yearly, we document that ruble devaluations are associated with a reduction in the observed material quality of products imported for resale, but that higher quality goods are also more profitable. We reconcile these facts using a simple multi-product sourcing model that features a demand system with expenditure switching, where more profitable products can be dropped more quickly after a cost shock. The estimated model shows that quality downgrading reduces average passthrough by 6% and has meaningful consequences for welfare.

JEL-codes: E30 F14 F31 L11 L15 L16 L81 M11 (search for similar items in EconPapers)
Date: 2019-02-25
New Economics Papers: this item is included in nep-cis and nep-mac
Note: ar908
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econ.cam.ac.uk/sites/default/files/pub ... pe-pdfs/cwpe1915.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1915

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().