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Currency invoicing and state-dependent pricing

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  • Kang, Hyunju

Abstract

While invoicing currency has been extensively studied in open-economy macroeconomics, Dotsey and Duarte (2011) suggest that the currency denomination of exports does not matter because standard invoicing currency regimes such as producer currency pricing (PCP) and local currency pricing (LCP) generate similar aggregate responses. However, this paper demonstrates the importance of invoicing currency in a two-country state-dependent pricing (SDP) model with variable demand elasticity in response to monetary shocks. To highlight the role of SDP, I contrast the SDP model’s responses across invoicing regimes with those from a time-dependent pricing (TDP) model identical to SDP except exogenous price adjustment. While SDP gives rise to different aggregate responses across invoicing currency regimes, TDP, which Dotsey and Duarte (2011) use in their analysis, fails to make a difference in the aggregate responses except in trade balance.

Suggested Citation

  • Kang, Hyunju, 2015. "Currency invoicing and state-dependent pricing," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 50-59.
    • Handle: RePEc:eee:jmacro:v:44:y:2015:i:c:p:50-59
    DOI: 10.1016/j.jmacro.2015.01.003
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    References listed on IDEAS

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    Cited by:

    1. Gerardo Licandro & Miguel Mello, 2017. "Foreign Currency Invoicing of Domestic Transactions as a Hedging Strategy Theory and Evidence for Uruguay," Documentos de trabajo 2017004, Banco Central del Uruguay.
    2. Miguel Mello, 2017. "Derivatives and Exchange Rate Hedging Strategies in Uruguayan Firms," Documentos de trabajo 2017005, Banco Central del Uruguay.

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    Keywords

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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