Exchange Rate Regimes, Financial Constraints, and Export Pricing: Evidence from Chinese Firms

This paper investigates the impact of global monetary shocks on Chinese export prices, with a par-ticular focus on the period before and after China's exchange rate regime shift in July 2005.Utilizing firm-level data, I demonstrate that U.S. monetary tightening significantly influences Chinese export prices, primarily through increased borrowing costs and liquidity con-straints.My findings remain robust across different time periods and when controlling for exchange rate fluctuations.I further distinguish between ordinary and processing trade, revealing that processing traders, less dependent on external financing, exhibit smaller price responses.The study also explores the limited spillover effects of European Central Bank monetary shocks on Chinese exports.A partial equilibrium model illustrates how global monetary contractions elevate export prices by exacerbating financial frictions.My results suggest that adopting a more flexible exchange rate regime can mitigate the adverse effects of foreign monetary policy shocks on export pricing.