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

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.