Multi-Product Exporters, Variable Markups and Exchange Rate Fluctuations

31 Pages Posted: 26 Mar 2014

See all articles by Mauro Caselli

Mauro Caselli

University of Trento - School of International Studies; University of Trento - Department of Economics and Management

Arpita Chatterjee

UNSW Australia Business School, School of Economics

Alan D. Woodland

University of New South Wales

Date Written: March 12, 2014

Abstract

In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. In a theoretical framework, we show that firms increase their markup and producer prices following a real depreciation and that this increase is greater for products with higher productivity, a consequence of local distribution costs. We estimate markups at the market-product-plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that within-firm heterogeneity is a key determinant of plants' response to exchange rate shocks. We also provide some evidence in favour of a local distribution cost channel of incomplete exchange rate pass-through.

Keywords: multi-product, variable markup, exchange rate pass-through, local distribution cost, Mexico

JEL Classification: D22, D24, F12, F14, F41, L11

Suggested Citation

Caselli, Mauro and Chatterjee, Arpita and Woodland, Alan D., Multi-Product Exporters, Variable Markups and Exchange Rate Fluctuations (March 12, 2014). UNSW Australian School of Business Research Paper No. 2014-15, Available at SSRN: https://ssrn.com/abstract=2414178 or http://dx.doi.org/10.2139/ssrn.2414178

Mauro Caselli (Contact Author)

University of Trento - School of International Studies ( email )

Via Tommaso Gar 14
Trento, Trento 38122
Italy

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy

Arpita Chatterjee

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Alan D. Woodland

University of New South Wales ( email )

School of Economics
Sydney, NSW 2052
Australia
61293859707 (Phone)
61293136337 (Fax)

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