Real Exchange Rate Volatility and Imports of Intermediate Inputs: A Microeconometric Analysis of Manufacturing Plants

Abstract

This paper uses plant-level data from the manufacturing sector of Chile for the period 1995–2007 to examine the effect of real exchange rate (RER) volatility on imports of intermediate inputs at the micro level. Using input–output tables, we construct sector-level RERs relevant for input import decisions and find that increases in the RER and its volatility reduce the fraction of imported intermediate inputs used by plants, while plants' probability of importing is not affected. Thus, fluctuations in the RER affect the intensive margin of imports (the amount of inputs imported) but not the extensive margin (the decision to import).