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Import Response to Exchange Rate Fluctuations: A Micro-level Investigation

Yao Li (), Jenny Xu () and Carol Zhao Chen
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Jenny Xu: Department of Economics, Hong Kong University of Science and Technology
Carol Zhao Chen: Department of Economics, Hong Kong University of Science and Technology

No 2015-27, HKUST IEMS Working Paper Series from HKUST Institute for Emerging Market Studies

Abstract: This paper presents theory and evidence on firms' import responses to exchange rate fluctuations using disaggregated Chinese imports data. The paper develops a heterogeneous-firm trade model that predicts import responses at both extensive and intensive margins as well as the more profound adjustment under ordinary trade than processing trade. Next, the paper empirically investigates import responses to exchange rate fluctuations at extensive and intensive margins in both the short run and the long run, and confirms the model predictions. We also find variations among import responses under different exchange rate regimes, including fixed exchange rate, expected appreciation, and confirmed appreciation.

Keywords: exchange rate; import; extensive margin; intensive margin; processing trade; exchange rate regimes; pass-through (search for similar items in EconPapers)
JEL-codes: F14 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-opm and nep-tra
Date: 2015-05, Revised 2015-05
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