Foreign Currency Pricing

Irina Levina () and Oleg Zamulin

No w0023, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: A special case of dollarization is analyzed: quotation of prices in dollars. The proposed explanation is price stickiness: when price adjustment is costly, forms can prefer to fix their prices in a stable foreign currency rather than in an unstable domestic one in order to avoid frequent price changes. The proposed model shows how the choice of price-setting currency made by a firm depends on the in ation rate, exchange rate volatility, the pricing currency of competitors and input suppliers, and the shape of the demand function. The model predicts that there are two Nash equilibria in the economy populated by symmetric firms: an equilibrium with uniform ruble pricing and an equilibrium with uniform dollar pricing. It is shown that in economy with less competition a smaller increase in inflation is needed to make an individual firm deviate from the equilibrium with uniform ruble pricing and turn to pricing in dollars.

Pages: 30 pages
Date: 2002-12
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.cefir.ru/papers/WP23.pdf (application/pdf)

Related works:
Journal Article: Foreign Currency Pricing (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0023

Access Statistics for this paper

More papers in Working Papers from Center for Economic and Financial Research (CEFIR) Contact information at EDIRC.
Bibliographic data for series maintained by Julia Babich ().