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American Economic Journal: Economic Policy: Vol. 5 No. 2 (May 2013)

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Multi-Product Firms and Exchange Rate Fluctuations

Article Citation

Chatterjee, Arpita, Rafael Dix-Carneiro, and Jade Vichyanond. 2013. "Multi-Product Firms and Exchange Rate Fluctuations." American Economic Journal: Economic Policy, 5(2): 77-110.

DOI: 10.1257/pol.5.2.77

Abstract

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how firms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specific marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specific and product-specific export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations. (JEL F14, F31, F33, O19, O24)

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Authors

Chatterjee, Arpita (U New South Wales)
Dix-Carneiro, Rafael (U MD)
Vichyanond, Jade (IMF)

JEL Classifications

F14: Empirical Studies of Trade
F31: Foreign Exchange
F33: International Monetary Arrangements and Institutions
O19: International Linkages to Development; Role of International Organizations
O24: Development Planning and Policy: Trade Policy; Factor Movement; Foreign Exchange Policy

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