Can Sticky Quantities Explain Export Insensitivity to Exchange Rates?

Doireann Fitzgerald (), Yaniv Yedid-Levi and Stefanie Haller ()
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Doireann Fitzgerald: Federal Reserve Bank of Minneapolis
Stefanie Haller: University College Dublin

IMF Economic Review, 2025, vol. 73, issue 1, No 2, 20-44

Abstract: Abstract Why are trade flows insensitive to movements in real exchange rates? We use micro data on exports for Ireland to show that this insensitivity persists at the firm-level intensive margin, and that sticky prices and/or markup adjustment alone cannot explain it: Quantities are sticky conditional on the behavior of markups. We propose customer base as a potential source of intensive margin quantity stickiness. We use a quantitative model of the firm problem calibrated to micro data to show that customer base can reduce the sensitivity of the firm-level intensive margin of trade flows to real exchange rates. This is especially true if there are substantial costs of adjusting investment in customer base, and if these costs are incurred in the foreign rather than the domestic market.

Date: 2025
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DOI: 10.1057/s41308-024-00267-6

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