Exchange Rate Pass-Through, Currency of Invoicing and Market Share

Michael Devereux, Ben Tomlin and Wei Dong

No 21413, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the impact of market structure on the joint determination of exchange rate pass- through and currency of invoicing in international trade. A novel feature of the study is the focus on market share of firms on both sides of the market—that is, exporting firms and importing firms. A model of monopolistic competition with heterogeneous firms has the following set of predictions: a) exchange rate pass-through should be non-monotonic and U-shaped in the market share of exporting firms, but monotonically declining in the market share of importers; b) exchange rate pass-through should be lower, the higher is local currency invoicing of imports; and c) producer currency invoicing should be related non-monotonically and U-shaped to exporter market share, and monotonically declining in importing firms’ market share. We test these predictions using a new and large micro data set covering the universe of Canadian imports over a six-year period. The data strongly support all three predictions.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-opm
Note: IFM
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Citations: View citations in EconPapers (43)

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Working Paper: Exchange Rate Pass-Through, Currency of Invoicing and Market Share (2015)
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