Exchange-Rate Regimes and the Behaviour of Exporters

Cosimo Petracchi, Luca Riva and Marco S. Petterson
Additional contact information
Cosimo Petracchi: Central Bank of Ireland
Luca Riva: Central Bank of Ireland
Marco S. Petterson: Central Bank of Ireland

No 11/RT/26, Research Technical Papers from Central Bank of Ireland

Abstract: This paper proposes a firm-level mechanism that explains why exchange-rate regimes are largely neutral with respect to real macro variables: exporters actively adjust marginal costs and markups to absorb nominal exchange-rate fluctuations. We quantify this mechanism using micro-level data from the European car market (1970–99). We show that floating regimes are associated with limited adjustment in destination-currency prices and limited response in quantities sold. We then estimate a structural demand-and-supply system to recover product-level markups and marginal costs. At breaks from pegged to floating regimes, producer-currency markups fall on impact by around 11% and marginal costs by 10%. A two-country real business cycle model with segmented financial markets, incorporating pricing-to-market and operational hedging, rationalises these patterns. Our model underscores the role of real micro rigidities, rather than nominal rigidities, in the weak transmission of exchange-rate fluctuations to real macro variables.

Keywords: European car market; exchange-rate regimes; demand estimation; pricing-to-market; variable markups; real rigidities. (search for similar items in EconPapers)
JEL-codes: D22 F31 F41 F44 L11 L62 N14 (search for similar items in EconPapers)
Date: 2026-10
New Economics Papers: this item is included in nep-eur
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.centralbank.ie/docs/default-source/pub ... pdf?sfvrsn=702741a_6 (application/pdf)

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: https://EconPapers.repec.org/RePEc:cbi:wpaper:11/rt/26

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().