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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.

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  • Richard Fabling & Lynda Sanderson, 2013. "Export performance, invoice currency, and heterogeneous exchange rate pass-through," Treasury Working Paper Series 13/03, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:13/03
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    Cited by:

    1. Reiss, Daniel Gersten, 2014. "Invoice Currency in Brazil," MPRA Paper 59412, University Library of Munich, Germany.
    2. Natalie Chen & Wanyu Chung & Dennis Novy, 2022. "Vehicle Currency Pricing and Exchange Rate Pass-Through," Journal of the European Economic Association, European Economic Association, vol. 20(1), pages 312-351.
    3. Eike Berner & Laura Birg & Dominik Boddin, 2017. "Retailers and Consumers: The Pass-through of Import Price Changes," The World Economy, Wiley Blackwell, vol. 40(7), pages 1314-1344, July.
    4. 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.
    5. Davide Arioldi & Luigi Ventura & Mark David Witte, 2022. "Network‐adjusted market share and the currency denomination of trade," The World Economy, Wiley Blackwell, vol. 45(8), pages 2560-2592, August.
    6. 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.
    7. Kazunobu Hayakawa & Nuttawut LAKSANAPANYAKUL & Toshiyuki Matsuura & Taiyo Yoshimi, 2024. "Export Dynamics and Invoicing Currency," Keio-IES Discussion Paper Series 2024-005, Institute for Economics Studies, Keio University.
    8. Daniel Gersten Reiss, 2015. "Invoice currency: Puzzling evidence and new questions from Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(2), pages 206-225.
    9. Salamat Ali, 2017. "Exchange Rate Effects on Agricultural Exports: Firm-level Evidence from Pakistan," Discussion Papers 2017-09, University of Nottingham, GEP.
    10. Lynda Sanderson, 2016. "Barriers to Generating International Income: Evidence from the Business Operations Survey," Treasury Working Paper Series 16/04, New Zealand Treasury.
    11. Richard Fabling & Lynda Sanderson, 2015. "Exchange rate fluctuations and the margins of exports," Treasury Working Paper Series 15/08, New Zealand Treasury.
    12. Parker, Miles, 2016. "How exporters set prices: evidence from a large behavioural survey," Working Paper Series 1974, European Central Bank.
    13. 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.
    14. Law, Kai Po Jenny & Satoh, Eiji & Yoshimi, Taiyo, 2018. "Exchange rate pass-through at the individual product level: Implications for financial market integration," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 261-271.
    15. Lynda Sanderson, 2013. "Sources of international investment data in the Longitudinal Business Database," Treasury Working Paper Series 13/31, New Zealand Treasury.
    16. Hülya Saygılı, 2023. "Invoicing currency, exchange rate pass‐through, and value‐added trade: The case of Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4401-4419, October.
    17. Muhammed Adamu Obomeghie & David Umoru, 2024. "Devaluation, Goods Price Variation, And Gdp Growth," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 16(2 (July)), pages 273-311.
    18. 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.
    19. Salamat Ali, 2020. "Exchange Rate Effects on Agricultural Exports: Transaction‐Level Evidence from Pakistan," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 1020-1044, May.
    20. Nguyen, Luan, 2016. "Should the Reserve Bank worry about the exchange rate?," MPRA Paper 75519, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exchange rate pass-through; Firm performance;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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