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

Author

Listed:
  • Yao Amber Li

    (Department of Economics, Hong Kong University of Science and Technology
    Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

  • Jenny Xu

    (Department of Economics, Hong Kong University of Science and Technology
    Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

  • Carol Zhao Chen

    (Department of Economics, Hong Kong University of Science and Technology)

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.

Suggested Citation

  • Yao Amber Li & Jenny Xu & Carol Zhao Chen, 2015. "Import Response to Exchange Rate Fluctuations: A Micro-level Investigation," HKUST IEMS Working Paper Series 2015-27, HKUST Institute for Emerging Market Studies, revised May 2015.
    • Handle: RePEc:hku:wpaper:201527
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Zhe Chen & Junjie Hong & Xiaonan Sun, 2020. "Exchange rate risk and trade mode choice in processing trade: Evidence from Chinese data," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 537-564, May.

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    More about this item

    Keywords

    exchange rate; import; extensive margin; intensive margin; processing trade; exchange rate regimes; pass-through;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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