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Forward-Looking Exporters and Exchange Rate Pass-Through: 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)

  • Carol Zhao Chen

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

Abstract

This paper shows that the pricing behavior of exporting firms exhibits a "forward-looking" nature under sticky prices. It offers a channel by which the expectations of future exchange rates affect current prices. To seek the micro-level evidence, we adopt detailed product-level import data of the United States and firm-product-level export data of China combined with forward premiums to study the exchange rate pass-through. We find that not only current (and past) exchange rate fluctuations but also anticipated future exchange rate changes effectively pass through into current prices, suggesting a potentially important factor in help explaining incomplete exchange rate pass-through.

Suggested Citation

  • Yao Amber Li & Carol Zhao Chen, 2015. "Forward-Looking Exporters and Exchange Rate Pass-Through: A Micro-Level Investigation," HKUST IEMS Working Paper Series 2015-28, HKUST Institute for Emerging Market Studies, revised Jul 2015.
    • Handle: RePEc:hku:wpaper:201528
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Forward-looking; Price adjustment; Exchange rate pass-through; Sticky price;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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