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Price Setting Transactions and the Role of Denominating Currency in FX Markets


  • Friberg, Richard

    () (Stockholm School of Economics)

  • Wilander, Fredrik



This report, commissioned by Sveriges Riksbank, examines the role of currency denomination in international trade transactions. It is divided in two parts. The first part consists of a survey of the price setting and payment practices of a large sample of Swedish exporting firms. The second part analyzes payments data from the Swedish settlement reports from 1999-2002. We examine whether invoicing patterns of Swedish and European companies changed following the creation of the EMU and how the currency denomination of exports differ from that of imports. Finally we consider the possibility that changes in invoicing patterns are correlated with changes in nominal exchange rates. Our main finding is that the same currency to a large extent is used for price setting, invoicing and payment for exports to third parties. We also find that the currency of the customer is the most used and that the euro is replacing the Swedish krona both in transactions with EMU-member countries but outside the EMU. Finally we find some evidence of a weak correlation between aggregate changes in invoicing patterns and changes in the trade weighted exchange rate over the period 1999-2002.

Suggested Citation

  • Friberg, Richard & Wilander, Fredrik, 2007. "Price Setting Transactions and the Role of Denominating Currency in FX Markets," Working Paper Series 201, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0201

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    References listed on IDEAS

    1. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    2. Shabtai Donnenfeld & Alfred Haug, 2003. "Currency Invoicing in International Trade: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 332-345, May.
    3. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    4. Donnenfeld, Shabtai & Zilcha, Itzhak, 1991. "Pricing of Exports and Exchange Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 1009-1022, November.
    5. Cook, David & Devereux, Michael B., 2006. "External currency pricing and the East Asian crisis," Journal of International Economics, Elsevier, vol. 69(1), pages 37-63, June.
    6. Charles Engel, 2003. "Expenditure Switching and Exchange-Rate Policy," NBER Chapters,in: NBER Macroeconomics Annual 2002, Volume 17, pages 231-300 National Bureau of Economic Research, Inc.
    7. Donnenfeld, Shabtai & Zilcha, Itzhak, 1995. "Bargaining in International Trade under Exchange-Rate Uncertainty," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 249-263, October.
    8. Devereux, Michael B. & Engel, Charles, 2002. "Exchange rate pass-through, exchange rate volatility, and exchange rate disconnect," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 913-940, July.
    9. Michael B. Devereux & Charles Engel, 2003. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 765-783.
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    11. Dominguez, Kathryn M., 1998. "The Dollar Exposure of Japanese Companies," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 388-405, December.
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    Cited by:

    1. Cúrdia, Vasco & Finocchiaro, Daria, 2013. "Monetary regime change and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 37(4), pages 756-773.
    2. Pavel Trunin & Sergey Narkevich, 2013. "Prospects for the Russian Ruble to Become Regional Reserve Currency," Working Papers 118, Gaidar Institute for Economic Policy, revised 2015.
    3. Narkevich, Siarhei & Trunin, Pavel, 2013. "Prospects for the Russian Ruble as a Regional Reserve Currency," Published Papers dok2, Russian Presidential Academy of National Economy and Public Administration.
    4. Sergey Narkevich & Pavel Trunin, 2012. "Reserve Currencies: Factors of Evolution and their Role in the World Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 162P.
    5. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    6. Yongding, Yu, 2014. "How Far Can Renminbi Internationalization Go?," ADBI Working Papers 461, Asian Development Bank Institute.

    More about this item


    Invoicing currency; exchange rate pass-through; price setting currency; exchange rate exposure; nominal rigidity;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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