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Export performance, invoice currency, and heterogeneous exchange rate pass-through

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Abstract

Using comprehensive, shipment-level merchandise trade data, we examine the extent to which New Zealand exporters maintain stable New Zealand dollar prices by passing on exchange rate changes to foreign customers. We find that the extent to which firms absorb exchange rate fluctuations in the short run is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, when jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the New Zealand dollar, while others use either the importer or a third currency. In the short run, this translates into differences in exchange rate pass through because of price rigidity in the invoice currency. Differences across invoice currencies diminish, but do not disappear, over time as prices adjust to reflect bilateral exchange rate movements.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2013/01.

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Length: 36 p.
Date of creation: Jan 2013
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Handle: RePEc:nzb:nzbdps:2013/01

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Cited by:
  1. Özer Karagedikli & Ryan, Michael & Daan Steenkamp & Tugrul Vehbi, 2013. "What happens when the Kiwi flies? Sectoral effects of the exchange rate shocks," Reserve Bank of New Zealand Discussion Paper Series DP2013/05, Reserve Bank of New Zealand.
  2. Richard Fabling & Arthur Grimes, 2014. "Over the Hedge: Do Exporters Practice Selective Hedging?," Working Papers 14_01, Motu Economic and Public Policy Research.
  3. Miles Parker, 2014. "Exchange rate movements and consumer prices: some perspectives some perspectives," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 31-41, March.
  4. Lynda Sanderson, 2013. "Sources of international investment data in the Longitudinal Business Database," Treasury Working Paper Series 13/31, New Zealand Treasury.
  5. Ozer Karagedikli & Michael Ryan & Daan Steenkamp & Tugrul Vehbi, 2013. "What happens when the Kiwi flies? The sectoral effects of the exchange rate shocks," CAMA Working Papers 2013-73, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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