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Dollar pricing redux

Author

Listed:
  • Camila Casas
  • Federico Díez
  • Gita Gopinath
  • Pierre-Olivier Gourinchas

Abstract

A country's exchange rate is at the center of economic and political debates on currency wars and trade competitiveness. The real consequences of exchange rate fluctuations depend critically on how firms set prices in international markets. Recent empirical evidence has challenged the dominant 'producer currency' pricing and 'local currency' pricing paradigms in the literature. In this paper we propose a new paradigm, consistent with the empirical evidence and characterized by three features: pricing in dollars, strategic complementarity in pricing and imported inputs in production. We call this the 'dollar pricing' paradigm and contrast its theoretical predictions with prior approaches in a general equilibrium New Keynesian model. We then employ novel data for Colombia to evaluate the implications of exchange rate fluctuations associated with commodity price shocks and show that the findings strongly support the dollar pricing paradigm.

Suggested Citation

  • Camila Casas & Federico Díez & Gita Gopinath & Pierre-Olivier Gourinchas, 2017. "Dollar pricing redux," BIS Working Papers 653, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:653
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. U.S. Monetary Policy Spillovers
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-11-12 13:07:42

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    Cited by:

    1. repec:bis:bisbps:95 is not listed on IDEAS
    2. Stijn Claessens & M. Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: A survey," CAMA Working Papers 2017-76, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    dominant currency; terms of trade; pass-through; monetary policy;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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