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DECTI Trade Seminar: Multi-Product Firms and Exchange Rate

Location:   MC4-301
Begins:   Jan 31, 2012 12:30
Ends:   Jan 31, 2012 14:00
Contact Person:   Anna Regina Rillo Bonfield

SpeakerArpita Chatterjee, School of Economics, Australian School of Business
University of New South Wales

Abstract: This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how firms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specific marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specific and product-specific export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations.

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