Currency Choice and Exchange Rate Pass-Through

We show, using novel data on currency and prices for US imports, that even conditional on a price change, there is a large difference in the exchange rate pass-through of the average good priced in dollars (25 percent) versus nondollars (95 percent). We document this to be the case across countries...

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Bibliographic Details
Published in:The American economic review 2010-03, Vol.100 (1), p.304-336
Main Authors: Gopinath, Gita, Itskhoki, Oleg, Rigobon, Roberto
Format: Article
Language:English
Subjects:
American dollar
Approximation
Currencies
Currency
Economic analysis
Economic models
Exchange rates
Exports
Foreign exchange rates
International monetary economics
Macroeconomics
Markups
Price changes
Price level changes
Price shocks
Prices
Pricing
Studies
Textiles
US imports
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Summary:We show, using novel data on currency and prices for US imports, that even conditional on a price change, there is a large difference in the exchange rate pass-through of the average good priced in dollars (25 percent) versus nondollars (95 percent). We document this to be the case across countries and within disaggregated sectors. This finding contradicts the assumption in an important class of models that the currency of pricing is exogenous. We present a model of endogenous currency choice in a dynamic price setting environment and show that the predictions of the model are strongly supported by the data.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.100.1.304