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Export performance, invoice currency, and heterogeneous exchange rate pass-through

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Abstract

Using comprehensive, shipment-level merchandise trade data, we examine the extent to which New Zealand exporters maintain stable New Zealand dollar prices by passing on exchange rate changes to foreign customers. We find that the extent to which firms absorb exchange rate fluctuations in the short run is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, when jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the New Zealand dollar, while others use either the importer or a third currency. In the short run, this translates into differences in exchange rate pass through because of price rigidity in the invoice currency. Differences across invoice currencies diminish, but do not disappear, over time as prices adjust to reflect bilateral exchange rate movements.

Suggested Citation

  • Richard Fabling & Lynda Sanderson, 2013. "Export performance, invoice currency, and heterogeneous exchange rate pass-through," Reserve Bank of New Zealand Discussion Paper Series DP2013/01, Reserve Bank of New Zealand.
  • Handle: RePEc:nzb:nzbdps:2013/01
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    Cited by:

    1. Reiss, Daniel Gersten, 2014. "Invoice Currency in Brazil," MPRA Paper 59412, University Library of Munich, Germany.
    2. Parker, Miles, 2016. "How exporters set prices: evidence from a large behavioural survey," Working Paper Series 1974, European Central Bank.
    3. Richard Fabling & Lynda Sanderson, 2015. "Exchange rate fluctuations and the margins of exports," Working Papers 15_05, Motu Economic and Public Policy Research.
    4. Karagedikli, Özer & Ryan, Michael & Steenkamp, Daan & Vehbi, Tugrul, 2016. "What happens when the Kiwi flies? Sectoral effects of exchange rate shocks on the New Zealand economy," Economic Modelling, Elsevier, vol. 52(PB), pages 945-959.
    5. Richard Fabling & Arthur Grimes, 2015. "Over the Hedge: Do Exporters Practice Selective Hedging?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(4), pages 321-338, April.
    6. Lynda Sanderson, 2013. "Sources of international investment data in the Longitudinal Business Database," Treasury Working Paper Series 13/31, New Zealand Treasury.
    7. Ozer Karagedikli & Michael Ryan & Daan Steenkamp & Tugrul Vehbi, 2013. "What happens when the Kiwi flies? The sectoral effects of the exchange rate shocks," CAMA Working Papers 2013-73, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Özer Karagedikli & Ryan, Michael & Daan Steenkamp & Tugrul Vehbi, 2013. "What happens when the Kiwi flies? Sectoral effects of the exchange rate shocks," Reserve Bank of New Zealand Discussion Paper Series DP2013/05, Reserve Bank of New Zealand.
    9. Miles Parker, 2014. "Exchange rate movements and consumer prices: some perspectives," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 31-41, March.
    10. Berner, Eike & Birg, Laura, 2012. "Retailers and Consumers: The pass-through of import price changes," Center for European, Governance and Economic Development Research Discussion Papers 133, University of Goettingen, Department of Economics.
    11. Daniel Gersten Reiss, 2015. "Invoice currency: Puzzling evidence and new questions from Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(2), pages 206-225.
    12. Salamat Ali, 2017. "Exchange Rate Effects on Agricultural Exports: Firm-level Evidence from Pakistan," Discussion Papers 2017-09, University of Nottingham, GEP.
    13. Lynda Sanderson, 2016. "Barriers to Generating International Income: Evidence from the Business Operations Survey," Treasury Working Paper Series 16/04, New Zealand Treasury.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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