Incomplete Exchange Rate Pass-Through and Firm Entry and Exit

Widely observed incomplete exchange rate pass-through changes mark-ups and could thereby induce entries and exits of exporting rms. This paper shows theoretically how entry and exit decisions and pricing behaviour of exporting rms are mutually in uential and how rm entries and exits can explain asymmetric and nonlinear pass-through in an intertemporal setting. The empirical results indicate that for most country couples examined, the number of rms exporting from one country to the other is not signicantly aected by changes in the bilateral exchange rate, despite the incompleteness of exchange rate pass-through.