Two-sided heterogeneity and exchange rate pass-through

The bargaining process between exporters and importers is key to understand the degree of exchange rate pass-through. Following the framework established by Goldberg and Tille (2013), we use a Colombian exporter–importer matched data from 2005 to 2014 to identify the relative bargaining power between exporters and importers, and investigate its effect on exchange rate pass-through. The results show that, within each exporter–importer pair, the role of importers is at least as important as exporters, and higher bargaining power of importers are usually associated with higher exchange rate pass-through. Our findings are robust to a variety of bargaining ability measurement, alternative empirical specifications, and the selection of certain industries.