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

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  • Richard Fabling
  • Lynda Sanderson

    ()
    (The Treasury)

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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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2013/13-03/twp13-03.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 13/03.

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Length: 38
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:nzt:nztwps:13/03

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Keywords: Exchange rate pass-through; Firm performance;

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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. 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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