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Price Adjustment to Exchange Rates and Forward-looking Exporters: Evidence from USA–China Trade

Authors Li, Yao Amber View this author's profile
Zhao, Chen HKUST affiliated (currently or previously)
Issue Date 2016
Source Review of International Economics , v. 24, (5), November 2016, p. 1023-1049
Summary This paper shows that the pricing behavior of exporting firms exhibits a “forward-looking” nature with sticky prices. As a result, the expectations of future exchange rates affect current prices at both the product level and firm level. We find evidence by employing both highly disaggregated Harmonized System (HS) 10-digit product-level import data of the USA and firm–product level customs data on China's exports to the USA. These findings provide evidence for a previously unexplored micro-level forward-looking nature of trade price adjustment as response to future exchange rates, and suggest a potentially important factor in helping explain incomplete exchange rate pass-through. © 2016 John Wiley & Sons Ltd
ISSN 0965-7576
Language English
Format Article
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