Quality, trade, and exchange rate pass-through

We investigate theoretically and empirically the effects of real exchange rate changes on the behavior of firms exporting multiple products with heterogeneous levels of quality. Our model, which features a demand elasticity that falls with quality, predicts more pricing-to-market and a smaller response of export volumes to a real depreciation for higher quality goods. We provide strong support for the model predictions using a unique data set of Argentinean firm-level wine export values and volumes between 2002 and 2009 combined with experts wine ratings to measure quality. The heterogeneity we find in the response of export prices and volumes to changes in exchange rates remains robust to alternative measures of quality, samples, and specifications. (c) 2016 Elsevier B.V. All rights reserved.