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Currency Shocks to Export Sales of Importers: A Heterogeneous Firms Model and Czech Micro Estimates

Peter Tóth ()

Working Papers from Czech National Bank

Abstract: To what extent can Czech exporters cushion the impact of currency appreciation shocks by using imported intermediates? We apply a partial equilibrium model with firms that are heterogeneous in their productivities. Producers can serve the domestic market, export final goods, or import inputs. In the model, an exogenous exchange rate shock simultaneously affects the variable costs and revenues associated with exports and imports. The impact of a hypothetical 1% appreciation of the domestic currency on sales is estimated using a panel of 7,356 Czech manufacturing firms observed from 2003 to 2006. We identify the estimates from within-firm variation in trade strategies, which is probably associated with the lifting of trade barriers due to Czech EU membership since 2004. For firms that both export and import, we predict a drop in total sales of 0.2%, a drop in export sales of 0.8%, and a rise in domestic sales of 0.2%.

Keywords: Exchange rate pass-through; heterogeneous firms; international trade; monopolistic competition; production function; total factor productivity. (search for similar items in EconPapers)
JEL-codes: C23 C26 D22 D24 F12 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2013/04

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