Export price and quality adjustment: The role of financial stress and exchange rate

Meng-Wei Chen, Cuicui Lu and Yuan Tian

Economic Modelling, 2021, vol. 96, issue C, 336-345

Abstract: This paper constructs a heterogeneous international trade model to investigate the impact of financial stress and exchange rate on credit-constrained exporting firms’ price and quality adjustments. Given that the elasticity of the cut-off cost is higher than the threshold, our model predicts that exporting firms would increase export prices and upgrade quality during times of financial stress or when foreign currency appreciates. Additionally, the incomplete pass-through of exchange rate to prices tends to be greater during times of financial stress. Our predictions on the adjustment effects of export price and quality are broadly confirmed by the trade data of China and its major trading partners from 2001 to 2011.

Keywords: Exchange rate pass-through; Pricing to market; Financial stress; Quality choice (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:96:y:2021:i:c:p:336-345

DOI: 10.1016/j.econmod.2020.11.008

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