The notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low-productivity firms, state-owned enterprises, processing trade, and final goods trade.
Bibliographical noteFunding Information:
We thank the referee for very helpful comments and suggestions. We also thank Yuqing Tang for her excellent research assistance. We acknowledge the financial support from the Social Science Foundation of China (18ZDA069, 20CJY046), the Shanghai Municipal Education Commission (2019‐01‐07‐00‐07‐E00031) and Humanlity and Social Science Foudation of China (17YJA630029).
© 2023 John Wiley & Sons Ltd.
- exchange rate expectation
- RMB appreciation