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Export Performance, Invoice Currency, Heterogeneous Exchange
DP2013/01
Export Performance, Invoice Currency,
And Heterogeneous Exchange Rate Pass-Through
By
Richard Fabling and Lynda Sanderson
http://www.rbnz.govt.nz/research/discusspapers/dp13_01.pdf
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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