Working Paper: NBER ID: w11209
Authors: Charles Engel
Abstract: Firms sometimes write price lists or catalogs for their exports, so they set prices for a period of time and do not adjust prices during that interval in response to changes in their environment. The firm sets the price either in its own currency or the importer's currency. This paper draws a simple link between the choice of currency, and the pricing decision of a firm that changes prices in response to all shocks. Specifically, if the latter firm's price has a lower variance in terms of its own currency than the importer's currency, then the firm with a price list will set the price in its own currency (and otherwise it will set price in the foreign currency.) This relationship is established by consideration of the firm with a price list as a special case of a firm that indexes its export price to the exchange rate.
Keywords: No keywords provided
JEL Codes: F1; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower variance in export price in own currency (F14) | producer currency pricing (PCP) (F31) |
| producer currency pricing (PCP) (F31) | producer currency stability (PCS) (F31) |
| lower variance in importer's currency (F31) | local currency pricing (LCP) (F31) |
| local currency pricing (LCP) (F31) | local currency stability (LCS) (F31) |