Exchange Rate Pass-Through and Data Frequency: Firm-Level Evidence from Bangladesh

The vast literature on exchange rate fluctuations estimates the exchange rate pass-through (ERPT). Most ERPT studies consider annually aggregated data for developed or large developing countries for estimating ERPT. These estimates vary widely depending on the type of country, data coverage, and frequency. However, the ERPT estimation using firm-level high-frequency export data of a small developing country is rare. In this paper, I estimate the pricing to market and the exchange rate pass-through at a monthly, quarterly, and annual level of data frequency to deal with aggregation bias. Furthermore, I investigate how delivery time-based factors such as frequent shipments and faster transport affect a firm`s pricing-to-market behavior. Using transaction-level export data of Bangladesh from 2005 to 2013 and the Poisson Pseudo Maximum Likelihood (PPML) estimation method, I find very small pricing to the markets to the exchange rates in the exporter's price. As pass-through shows how the exporters respond to macro shocks, for Bangladesh, this low export price response to the exchange rate changes indicates that currency devaluation might not have a significant effect on the exporter. The minimal price response and high pass-through contrast with the literature on incomplete pass-through at the annual level. By considering the characteristics of the firms, products, and destinations, I investigate the heterogeneity of the pass-through. The findings remain consistent with several robustness checks.