Abstract: This paper studies how exchange‐rate regimes affect the pricing and production decisions of multi‐product exporting firms. We introduce a framework in which firms respond to shifts in future exchange‐rate volatility by adjusting output, prices, and markups. Using detailed microdata for the European car market between 1970 and 1999, we structurally estimate the resulting demand and supply system and recover product‐level markups. We find that transitions from fixed to floating rates are associated with falling markups and higher dispersion, which gradually revert to their initial levels within about three years. We rationalize these patterns using a model that incorporates risk aversion and pricing-to-market. Our findings suggest that price setting plays an important role in transmitting cross-border nominal shocks, and has implications for the exchange-rate disconnect and the Mussa facts.