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On the Role of Pricing Exports in a Third Currency

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  • Friberg, Richard

    ()
    (Department of Economics)

Abstract

The share of Swedish exports that are invoiced in U.S. dollars has doubled comparing a sample from 1968 with figures from 1993. There has been no corresponding increase in Swedish trade with the United States. This serves as motivation for our interest in price setting/invoicing in a third currency. We investigate the role of pricing in the importers', exporter's or a third currency in a simple model with pre-set prices. The firm of study is a risk neutral monopolist exporter who faces a linear demand curbe. Expected prices, quantities and profits depend on the price setting currency chosen. Also the curvature of realised profits as a function of exchange rate surprises depends on the price setting currency chosen. In an extension we discuss the role of competition from a third country in a model of Bertrand competition in differentiated goods.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 128.

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Length: 35 pages
Date of creation: Sep 1996
Date of revision:
Publication status: Forthcoming in Journal of International Economics.
Handle: RePEc:hhs:hastef:0128

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
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Web page: http://www.hhs.se/
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Keywords: Invoicing; exchange rate fluctuations; pricing of exports;

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References

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  1. Kenneth A. Froot & Paul Klemperer, 1989. "Exchange Rate Pass-Through When Market Share Matters," NBER Working Papers 2542, National Bureau of Economic Research, Inc.
  2. Timothy A Luehrman, 1990. "The Exchange Rate Exposure of a Global Competitor," Journal of International Business Studies, Palgrave Macmillan, vol. 21(2), pages 225-242, June.
  3. Donnenfeld, S. & Zilcha, I., 1989. "Pricing Of Exports And Exchange Rate Uncertainty," Papers 12-89, Tel Aviv.
  4. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
  5. Marston, R.C., 1996. "The Effects of Industry Structure on Economic Exposure," Weiss Center Working Papers 96-3, Wharton School - Weiss Center for International Financial Research.
  6. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
  7. Donnenfeld, S. & Zilcha, I., 1993. "Barganing in International Trade under Exchange Rate Uncertainty," Papers 13-93, Tel Aviv.
  8. Magee, Stephen P & Rao, Ramesh K S, 1980. "Vehicle and Nonvehicle Currencies in International Trade," American Economic Review, American Economic Association, vol. 70(2), pages 368-73, May.
  9. Black, Stanley W., 1985. "International money and international monetary arrangements," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 22, pages 1153-1193 Elsevier.
  10. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
  11. Baron, David P, 1976. "Fluctuating Exchange Rates and the Pricing of Exports," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 425-38, September.
  12. Richard C. Marston, 1996. "The Effects of Industry Structure on Economic Exposure," NBER Working Papers 5518, National Bureau of Economic Research, Inc.
  13. Robert F. Owen & Stylianos Perrakis, 1988. "An International Duopoly Model Under Exchange Rate Uncertainty," Revue Économique, Programme National Persée, vol. 39(5), pages 1035-1060.
  14. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  15. Ahtiala, Pekka & Orgler, Yair E., 1995. "The optimal pricing of exports invoiced in different currencies," Journal of Banking & Finance, Elsevier, vol. 19(1), pages 61-77, April.
  16. S.A.B. Page, 1977. "Currency of Invoicing in Merchandise Trade," National Institute Economic Review, National Institute of Economic and Social Research, vol. 81(1), pages 77-81, August.
  17. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
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Cited by:
  1. Oi, Hiroyuki & Otani, Akira & Shirota, Toyoichiro, 2004. "The Choice of Invoice Currency in International Trade: Implications for the Internationalization of the Yen," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(1), pages 27-63, March.
  2. Agnès Bénassy-Quéré & Benoît Mojon & Armand-Denis Schor, 1998. "The International Role of the Euro," Working Papers 1998-03, CEPII research center.

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