Dollar not so dominant: Dollar invoicing has only a small effect on trade prices

Joseph E. Gagnon and Madi Sarsenbayev

Journal of International Money and Finance, 2023, vol. 137, issue C

Abstract: This paper estimates and tests three models of the effects of exchange rate changes on export prices. It supports the Goldberg and Knetter (1997) canonical result that exporters adjust their prices by about half of any movement in exchange rates. A new twist is that exchange rate movements against importing countries account for only two-thirds of this price adjustment, while exchange rate movements against a dominant currency account for the other third. The dominant currency is the euro in Europe and Africa and the US dollar in Asia and the Western Hemisphere. The recent claim that the dollar is the most important driver of export prices (Gopinath et al. 2020) is shown to be valid only for the smallest transactions. For the bulk of international trade, the extra effects of the dollar (or the euro) beyond their effects as exporter or importer currencies are relatively modest.

Keywords: Exchange rate pass-through; Pricing to market; Dominant currency paradigm; Local currency pricing; Producer currency pricing (search for similar items in EconPapers)
JEL-codes: F14 F32 F41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623000906

DOI: 10.1016/j.jimonfin.2023.102889

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