Importer Dispersion and Exchange Rate Pass-Through

Qingyuan Du (), Yalin Liu () and Jianwei Xu ()
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Qingyuan Du: Department of Economics, Monash University
Yalin Liu: Central University of Finance and Economics
Jianwei Xu: Beijing Normal University

No 2022-23, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper investigates the effect of importer dispersion on exchange rate pass-through. We show theoretically that greater importer dispersion leads to lower exporter markup, thereby causing a higher exchange rate pass-through. Empirically, we use Colombia’s transaction-level customs data to provide strong evidence supporting the theoretical prediction. The quantitative effect of importer dispersion on exchange rate pass-through is significant: the importer dispersion channel is at least as important as the traditional exporter heterogeneity channel. Our results are robust to various empirical specifications and become even stronger in the context of the dominant currency paradigm.

Keywords: importer heterogeneity; exchange rate pass-through (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-mon and nep-opm
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