Dollar Not So Dominant: Dollar Invoicing Has Only a Small Effect on Trade Prices

Joseph Gagnon and Madi Sarsenbayev

No WP12-16, Working Paper Series from Peterson Institute for International Economics

Abstract: This paper estimates and tests four 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 three-fifths of this price adjustment, while exchange rate movements against a dominant currency account for the other two-fifths. 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 exporting economies. 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: 2021-12
New Economics Papers: this item is included in nep-int, nep-mon and nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.piie.com/publications/working-papers/d ... y-small-effect-trade (text/html)

Related works:
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:iie:wpaper:wp21-16

Access Statistics for this paper

More papers in Working Paper Series from Peterson Institute for International Economics Contact information at EDIRC.
Bibliographic data for series maintained by Peterson Institute webmaster ().