By: |
Mary Amiti (Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045);
Oleg Itskhoki (Princeton University, Department of Economics, Princeton, NJ 08544);
Jozef Konings (University of Liverpool Management School, Chatham St, Liverpool L69 7ZH, UK and Katholieke Universiteit Leuven, Department of Economics, Naamsestraat 69, 3000 Leuven, Belgium) |
Abstract: |
Large movements in exchange rates have small eects on the prices of
internationally traded goods. Using a new dataset on currency invoicing of
Belgian rms, we study how the currency of invoicing interacts with rm
characteristics in shaping the extent of exchange rate pass-through at dierent
time horizons. The US dollar and the Euro are the dominant currencies in both
Belgium’s exports and imports, with substantial variation in currency choice
across rms and products even within narrowly dened manufacturing industries.
We nd that smaller, nonimport-intensive rms tend to denominate their exports
in euros (producer currency pricing) and exhibit nearly complete exchange-rate
pass-through into destination currency prices at all horizons. In contrast,
the largest most import-intensive rms, and in particular with imports
denominated in US dollars, tend to also denominate their exports in US dollars
(dominant currency pricing) and exhibit very low passthrough in the short run,
which gradually increases to 40–50% pass-through at the annual horizon. We
show that these empirical patterns are in line with the predictions of a
theoretical framework featuring heterogeneous rms with variable markups,
endogenous international input sourcing and staggered price setting with
endogenous currency choice. We plan to use a variant of a such model,
disciplined with the Belgian rm-level data, for counterfactual analysis of the
gradual increase in the use of the euro in international trade flows. |
Keywords: |
inflation forecastsmonthly consumer and producer surveysqualitative survey informationmodel-consistent expectationsJDemetra+ SSF library |
JEL: |
E31 E37 |
Date: |
2018–10 |
URL: |
http://d.repec.org/n?u=RePEc:nbb:reswpp:201810-353&r=all |