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Export Performance, Invoice Currency and Heterogeneous Exchange Rate Pass-through

World economy, 2015-02, Vol.38 (2), p.315-339 [Peer Reviewed Journal]

2014 John Wiley & Sons Ltd ;Copyright Blackwell Publishing Ltd. Feb 2015 ;ISSN: 0378-5920 ;EISSN: 1467-9701 ;DOI: 10.1111/twec.12198

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  • Title:
    Export Performance, Invoice Currency and Heterogeneous Exchange Rate Pass-through
  • Author: Fabling, Richard ; Sanderson, Lynda
  • Subjects: Currencies ; Currency ; Currency in circulation ; Decision making ; Exchange Rate ; Exchange rates ; Export performance ; Exporters ; Exports ; Exports and Imports ; Foreign Exchange ; Foreign exchange rates ; Heterogeneity ; Open economies ; Organizational behavior ; Prices ; Studies ; Trade ; Values
  • Is Part Of: World economy, 2015-02, Vol.38 (2), p.315-339
  • Description: Using comprehensive, shipment‐level merchandise trade data for a small, open economy, we examine heterogeneity in exporters' exchange rate pass‐through (ERPT) behaviour. We draw together two recent studies of ERPT, linking invoice currency decisions and firm performance to heterogeneity in ERPT. Like these studies, we find that the short‐run reaction of export unit values to exchange rate fluctuations is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, we then show that when the two factors are jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the producer currency, while others use either the local or a vehicle currency. In the short run, this translates into differences in exchange rate pass‐through because of price rigidity in the invoice currency. Firm characteristics do not have an independent impact on pass‐through beyond their effect on currency composition. Differences across invoice currencies diminish over time, but do not disappear, as prices adjust to reflect bilateral exchange rate movements.
  • Publisher: Oxford: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0378-5920
    EISSN: 1467-9701
    DOI: 10.1111/twec.12198
  • Source: Alma/SFX Local Collection
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