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Invoicing and the Dynamics of Pricing-to-Market: Evidence from UK Export Prices around the Brexit Referendum

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  • Corsetti, Giancarlo
  • Crowley, Meredith A.
  • Han, Lu

Abstract

We provide micro-econometric evidence that, following the large and persistent sterling depreciation after the Brexit referendum, on impact, exchange rate pass-through (ERPT) was complete for transactions invoiced in producer currency and low for sales invoiced either in a vehicle or in the destination market currency. Yet these differences strikingly narrowed within six quarters. A weaker currency did not translate into a persistent gain in price competitiveness for UK exports. At a granular level we find that UK exporters invoice in multiple currencies---even when shipping a product to the same destination---and switch currencies over time. Remarkably, we fail to detect significant changes in the relative shares of invoicing currencies in response to the Brexit shock. Last but not least, we find that UK firms price-to-market, i.e., adjust markups to bilateral exchange rate and CPI movements, only when they invoice sales in the destination-market currency.

Suggested Citation

  • Corsetti, Giancarlo & Crowley, Meredith A. & Han, Lu, 2022. "Invoicing and the Dynamics of Pricing-to-Market: Evidence from UK Export Prices around the Brexit Referendum," CEPR Discussion Papers 13282, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13282
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    More about this item

    Keywords

    Exchange rates; Pass through; Law of one price; Markup elasticity; Vehicle currency; Dominant currency; Firm level data;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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