Chen, Natalie and Juvenal, Luciana (2013) Quality, trade, and exchange rate pass-through. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2013 (Number 165).

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Abstract

This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations
due to product quality. We model theoretically the effects of real exchange rate changes on
the optimal price and quantity responses of firms that export multiple products with heterogeneous
levels of quality. The model shows that the elasticity of demand perceived by exporters decreases
with a real depreciation and with quality, leading to more pricing-to-market and to a smaller
response of export volumes to a real depreciation for higher quality goods. We test empirically
the predictions of the model by combining a unique data set of highly disaggregated Argentinean
firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a
measure of quality. In response to a real depreciation, we find that firms significantly increase more
their markups and less their export volumes for higher quality products, but only when exporting
to high income destination countries. These findings remain robust to different measures of quality,
samples, specifications, and to the potential endogeneity of quality.

Item Type:	Working or Discussion Paper (Working Paper)
Alternative Title:
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Exchange rate pass-through , Prices -- Argentina, Business enterprises -- Argentina, Wine industry -- Argentina
Series Name:	CAGE Online Working Paper Series
Publisher:	Department of Economics, University of Warwick
Place of Publication:	Coventry, UK
Official Date:	September 2013
Dates:	Date Event September 2013 Published
Volume:	Volume 2013
Number:	Number 165
Number of Pages:	42
Institution:	University of Warwick
Status:	Not Peer Reviewed
Publication Status:	Published
Version or Related Resource:	Also part of the Centre for Economic Policy Research (CEPR) Discussion Paper No. 9744, November 2013 www.cepr.org/pubs/dps/DP9744.php

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