Abstract
Exchange rate fluctuations are a key factor affecting international trade prices. This paper shows the incomplete exchange rate pass-through patterns in China and its linkage with importers’ credit constraints and other characteristics. Using Chinese firm-level information and customs transaction records from 2000 to 2007, we find that (1) the average import price pass-through in China is about 35% to 40%, far below the near complete 95% export price pass-through; (2) for firms in financially more vulnerable industries, both import and export exchange rate pass-through tend to be more complete; (3) higher import source diversity of a firm can effectively reduce the import price pass-through and offset the effects of credit constraints.