Exchange Rate Shocks and Quality Adjustments

Alexander Rodnyansky and Daniel Goetz

No 15248, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that refreshes its product line twice-yearly, we document that higher quality products are more profitable than lower quality ones, but that the number of high quality products offered experiences a relative decrease after a large ruble devaluation in 2014. We show that rising firm costs—and not shrinking consumer incomes—explains the reallocation, and rationalize the data with a simple model that features consumer expenditure switching between high and low qualities. The reallocation to lower quality products reduces average pass-through by 15%.

Keywords: Quality; Exchange rate pass-through; Devaluations; Crisis; Demand estimation (search for similar items in EconPapers)
JEL-codes: E30 F14 F31 L11 L15 L16 L81 M11 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-cis, nep-com, nep-mac, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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