Economics at your fingertips  

Margins of imports, forward-looking firms, and exchange rate movements

Haichao Fan, Yao Li () and Chen Carol Zhao

Journal of International Money and Finance, 2018, vol. 81, issue C, 185-202

Abstract: This paper presents theory and evidence on firms’ import responses to current and future exchange rates along both intensive and extensive margins. The paper first builds a dynamic heterogeneous-firm model to study how firms adjust their import decision by taking into account both current and future exchange rates. In the model, individual firms pay a fixed sunk cost and face a probability of failure when searching for foreign intermediate suppliers. The impact of future exchange rate on import is different from that of current exchange rate: spot exchange rate appreciation would increase both the intensive margin (import value of individual firm) and the extensive margin (the number of importing firms), while future exchange rate appreciation increases the extensive margin rather than the intensive margin of imports. The model predictions are strongly supported by an empirical analysis using disaggregated data on China’s imports from the United States and forward rates between US Dollar (USD) and Chinese Yuan (CNY) on the non-deliverable exchange market.

Keywords: Import; Future exchange rate; Extensive margin; Intensive margin (search for similar items in EconPapers)
JEL-codes: F31 F14 F12 F41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-11-14
Handle: RePEc:eee:jimfin:v:81:y:2018:i:c:p:185-202