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On the Role of Pricing Exports in a Third Currency

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Author Info
Friberg, Richard () (Department of Economics)

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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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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
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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
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Related research
Keywords: Invoicing; exchange rate fluctuations; pricing of exports;

Find related papers by JEL classification:
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard C. Marston, 1996. "The Effects of Industry Structure on Economic Exposure," NBER Working Papers 5518, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. 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.
  3. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
    Other versions:
  4. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February. [Downloadable!] (restricted)
    Other versions:
  5. Baron, David P, 1976. "Fluctuating Exchange Rates and the Pricing of Exports," Economic Inquiry, Oxford University Press, vol. 14(3), pages 425-38, September.
  6. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February. [Downloadable!] (restricted)
  7. Donnenfeld, Shabtai & Zilcha, Itzhak, 1991. "Pricing of Exports and Exchange Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 1009-22, November. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  9. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Donnenfeld, Shabtai & Zilcha, Itzhak, 1995. "Bargaining in International Trade under Exchange-Rate Uncertainty," Review of International Economics, Blackwell Publishing, vol. 3(3), pages 249-63, October.
    Other versions:
  12. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  13. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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