On the Role of Pricing Exports in a Third Currency
The share of Swedish exports that are invoiced in U.S. dollars has doubled comparing a sample from 1968 with figures from 1993. There has been no corresponding increase in Swedish trade with the United States. This serves as motivation for our interest in price setting/invoicing in a third currency. We investigate the role of pricing in the importers', exporter's or a third currency in a simple model with pre-set prices. The firm of study is a risk neutral monopolist exporter who faces a linear demand curbe. Expected prices, quantities and profits depend on the price setting currency chosen. Also the curvature of realised profits as a function of exchange rate surprises depends on the price setting currency chosen. In an extension we discuss the role of competition from a third country in a model of Bertrand competition in differentiated goods.
|Date of creation:||Sep 1996|
|Publication status:||Forthcoming in Journal of International Economics.|
|Contact details of provider:|| Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden|
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