Multi-product exporters, variable markups and exchange rate fluctuations

Mauro Caselli, Arpita Chatterjee and Alan Woodland

No 2014-15, Discussion Papers from School of Economics, The University of New South Wales

Abstract: In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. In a theoretical framework, we show that firms increase their markup and producer prices following a real depreciation and that this increase is greater for products with higher productivity, a consequence of local distribution costs. We estimate markups at the market-product-plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that within-firm heterogeneity is a key determinant of plants' response to exchange rate shocks. We also provide some evidence in favour of a local distribution cost channel of incomplete exchange rate pass-through.

Keywords: multi-product; variable markup; exchange rate pass-through; local distribution cost; Mexico (search for similar items in EconPapers)
JEL-codes: D22 D24 F12 F14 F41 L11 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-03
New Economics Papers: this item is included in nep-ger, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Multi-product exporters, variable markups and exchange rate fluctuations (2017)
Journal Article: Multi‐product exporters, variable markups and exchange rate fluctuations (2017)
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