The Causal Effects of Expected Depreciations

We estimate the causal effects of a shift in the future expected exchange rate of a local currency against the US dollar on a representative sample of firms in a small open economy. We survey a nationally representative sample of firms and provide the one-year-ahead nominal exchange rate forecast published by the local central bank to a random sub-sample of firm managers. This information treatment is effective in shifting exchange rate expectations and perceptions. These effects are persistent and larger for non-exporting firms. Linking survey responses with administrative census data, we estimate a positive elasticity of current import expenditures to a future expected depreciation. Our estimates highlight the intertemporal margin of trade to anticipated changes in trade costs.