Exchange Rates and Firm Behavior

Title: Exchange Rates and Firm Behavior
Principal Investigator: Doireann Fitzgerald
Dates: September 1, 2009 - August 31, 2012
Sponsor: National Science Foundation

The narrow goal of this project is to document how exporters and potential exporters in a small open economy respond to exchange rate changes. The project will explore firms' responses both in terms of pricing of home sales versus exports, and in terms of participation and sales in domestic and export markets. The project will make use of a unique proprietary data set that merges the plant census for Ireland (a small open economy) with the survey of prices used to construct the producer price index.

The first stage of the project involves merging and cleaning the data. The second stage of the project investigates the extent and nature of pricing-to-market and the significance of price stickiness among a particular group of exporters. Preliminary results are suggestive of slow passthrough of exchange rate changes into import prices. Given evidence of more rapid passthrough at higher levels of aggregation, this suggests that entry and exit of products and exporters may be crucial to understanding real exchange rate movements. The third stage of the project investigates the response of participation and sales in home and export markets to movements in exchange rates.