Dominant currencies How firms choose currency invoicing and why it matters

Mary Amiti, Oleg Itskhoki and Jozef Konings

No 353, Working Paper Research from National Bank of Belgium

Abstract: Large movements in exchange rates have small effects on the prices of internationally traded goods. UsinganewdatasetoncurrencyinvoicingofBelgianfirms,westudyhowthecurrencyof invoicinginteractswithfirmcharacteristicsinshapingtheextentofexchangeratepass-throughat differenttimehorizons. TheUSdollarandtheEuroarethedominantcurrenciesinbothBelgium’s exportsandimports,withsubstantialvariationincurrencychoiceacrossfirmsandproductseven withinnarrowlydefinedmanufacturingindustries.Wefindthatsmaller,nonimport-intensivefirms tendtodenominatetheirexportsineuros(producercurrencypricing)andexhibitnearlycomplete exchange-ratepass-throughintodestinationcurrencypricesatallhorizons. Incontrast,thelargest most import-intensive firms, and in particular with imports denominated in US dollars, tend to alsodenominatetheirexportsinUSdollars(dominantcurrencypricing)andexhibitverylowpassthroughintheshortrun,whichgraduallyincreasesto40–50%pass-throughattheannualhorizon. Weshow thatthese empiricalpatterns arein linewith thepredictions ofa theoreticalframework featuringheterogeneousfirmswithvariablemarkups,endogenousinternationalinputsourcingand staggeredpricesettingwithendogenouscurrencychoice. Weplantouseavariantofasuchmodel, disciplined with the Belgian firm-level data, for counterfactual analysis of the gradual increase in theuseoftheeuroininternationaltradeflows.

Keywords: inflation; forecastsmonthly; consumer; and; producer; surveysqualitative; survey; informationmodel-consistent; expectationsJDemetra+; SSF; library (search for similar items in EconPapers)
JEL-codes: E31 E37 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2018-10
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters (2022)
Working Paper: Dominant Currencies: How firms choose currency invoicing and why it matters (2020)
Working Paper: Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201810-353

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