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Export pricing and exchange rate expectations under uncertainty

Andrea Fracasso (), Angelo Secchi and Chiara Tomasi

Journal of Comparative Economics, 2022, vol. 50, issue 1, 135-152

Abstract: This paper contributes to the literature on firms’ export pricing by assessing whether and to what extent firms take into account the expected future evolution of the exchange rates while setting their prices. Using French micro-level trade data, our empirical analysis reveals that by adjusting their export prices, firms partly absorb information about future exchange rate variations. The extent to which individual exporters absorb future exchange rate fluctuations is found to depend on their market power, in accordance with theoretical dynamic demand-side models encompassing mechanisms creating an inter-temporal relationship between current market shares and future profits. The analysis also shows that the strength of such expectation-related mechanism is considerably reduced with greater future exchange rate uncertainty, in line with an interpretation of pricing-to-market as an investment decision under uncertainty. In a comparative perspective our results are shown to drive asymmetric responses across destinations of aggregate bilateral export flows to expected exchange rate movements.

Keywords: Firms’ export prices; Exchange rate disconnect; Expectations; Market power (search for similar items in EconPapers)
JEL-codes: F12 F14 F31 F41 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Export pricing and exchange rate expectations under uncertainty (2022)
Working Paper: Export pricing and exchange rate expectations under uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:50:y:2022:i:1:p:135-152

DOI: 10.1016/j.jce.2021.07.001

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