Monetary shocks,exchange rates,and the extensive margin of exports |
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Institution: | 1. CREA, University of Luxembourg, Luxembourg;2. CORE, Université catholique de Louvain, Belgium |
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Abstract: | This paper develops a two-country Dynamic General Equilibrium model to assess the relationship between the real exchange rate and the extensive margin of exports. Exchange rate pass-through to consumer prices governs the relative strength of a demand channel onto the exporting decision of a firm. With incomplete pass-through, a favorable movement in the real exchange rate generates increased export participation and an expansion in the extensive margin of exports. This result is consistent with firm-level studies, and contributes to an ongoing empirical debate as to the importance of changes in export participation over the business cycle. |
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Keywords: | Exchange rate pass-through Extensive margin of exports Monetary shocks E31 E52 F41 |
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