Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports

TLDR

The study investigates how exchange‑rate movements influence markup adjustment in automobile exports. It analyzes bilateral export price data from the USA, Germany, and Japan. Japanese exporters heavily adjust markups to stabilize buyer‑currency prices, German exporters show weak evidence, US exporters show none, and when present the adjustment is persistent and aligns with exporter‑currency invoicing except for exports to the USA and Canada.

Abstract

This paper uses data on bilateral automobile export prices from the USA, Germany and Japan to gauge the importance of markup adjustment driven by exchange rate movements across several destination markets. We find that Japanese exports are characterized by a high degree of markup adjustment designed to stabilize the price measured in the buyer's currency. There is weak evidence for such behavior on the part of German exporters and no evidence of markup adjustment by US exporters. Where it exists, markup adjustment tends to be highly persistent. The dynamic pattern of markup adjustment is consistent with invoicing in the exporter's currency except for exports to the USA and Canada.