Local Currency Pricing versus Producer Currency Pricing: Direct Evidence from German Exporters

Fendel Ralf, Swonke Christoph and Frenkel Michael
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Fendel Ralf: WHU – Otto Beisheim School of Management, Burgpl. 2,Vallendar, Germany
Swonke Christoph: German Council of Economic Experts,Wiesbaden, Germany
Frenkel Michael: WHU – Otto Beisheim School of Management, Burgpl. 2,Vallendar, Germany

German Economic Review, 2008, vol. 9, issue 2, 160-179

Abstract: In new open-economy macroeconomic models, the assumption on the pricing behavior of firms in international trade plays a central role. Whether firms apply producer currency pricing (PCP) or local currency pricing (LCP) crucially affects, for example, the design of optimal monetary policy or the choice of the optimal exchange rate system. However, empirical evidence has so far been mixed and is furthermore mostly of an indirect nature. This paper draws direct evidence on the price-setting behavior of German exporters from a questionnaire-based survey. We find that PCP applies in more integrated markets. Differences between LCP firms and PCP firms mainly exist with respect to the use of mark-ups and in the validity of the law of one price for their respective products.

Keywords: Local currency pricing; producer currency pricing; new openeconomy macroeconomics (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1111/j.1468-0475.2008.00429.x

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