Dominant Currency Pricing
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Dominant Currencies And External Adjustment
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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2020-07-20
Dominant Currencies And External Adjustment written by Gustavo Adler and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-07-20 with Business & Economics categories.
The extensive use of the US dollar when firms set prices for international trade (dubbed dominant currency pricing) and in their funding (dominant currency financing) has come to the forefront of policy debate, raising questions about how exchange rates work and the benefits of exchange rate flexibility. This Staff Discussion Note documents these features of international trade and finance and explores their implications for how exchange rates can help external rebalancing and buffer macroeconomic shocks.
Dominant Currency Paradigm A New Model For Small Open Economies
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Author : Camila Casas
language : en
Publisher: International Monetary Fund
Release Date : 2017-11-22
Dominant Currency Paradigm A New Model For Small Open Economies written by Camila Casas and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-11-22 with Business & Economics categories.
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Dominant Currency Pricing And The Global Output Spillovers From Us Dollar Appreciation
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Author : Georgios Georgiadis
language : en
Publisher:
Release Date : 2019
Dominant Currency Pricing And The Global Output Spillovers From Us Dollar Appreciation written by Georgios Georgiadis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Different export-pricing currency paradigms have different implications for a host of issues that are critical for policymakers such as business cycle co-movement, optimal monetary policy, optimum currency areas and international monetary policy co-ordination. Unfortunately, the literature has not reached a consensus on which pricing paradigm best describes the data. Against this background, we test for the empirical relevance of dominant-currency pricing (DCP). Specifically, we first set up a structural three-country New Keynesian dynamic stochastic general equilibrium model which nests DCP, producer-currency pricing (PCP) and local-currency pricing (LCP). In the model, under DCP the output spillovers from shocks that appreciate the US dollar multilaterally decline with an economy's export-import US dollar pricing share differential, i.e. the difference between the share of an economy's exports and imports that are priced in the dominant currency. Underlying this prediction is a change in an economy's net exports in response to multilateral changes in the US dollar exchange rate that arises because of differences in the extent to which exports and imports are priced in the dominant currency. We then confront this prediction of DCP with the data in a sample of up to 46 advanced and emerging market economies for the time period from 1995 to 2018. Specifically, controlling for other cross-border transmission channels, we document that consistent with the prediction from DCP the output spillovers from US dollar appreciation correlate negatively with recipient economies' export-import US dollar invoicing share differentials. We document that these findings are robust to considering US demand, US monetary policy and exogenous exchange rate shocks as a trigger of US dollar appreciation, as well as to accounting for the role of commodity trade in US dollar invoicing.
Introducing Dominant Currency Pricing In The Ecb S Global Macroeconomic Model
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Author : Georgios Georgiadis
language : en
Publisher:
Release Date : 2019
Introducing Dominant Currency Pricing In The Ecb S Global Macroeconomic Model written by Georgios Georgiadis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Exchange Rate Elasticities Of International Tourism And The Role Of Dominant Currency Pricing
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Author : Ding Ding
language : en
Publisher: INTERNATIONAL MONETARY FUND
Release Date : 2022-02-04
Exchange Rate Elasticities Of International Tourism And The Role Of Dominant Currency Pricing written by Ding Ding and has been published by INTERNATIONAL MONETARY FUND this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-02-04 with Business & Economics categories.
We estimate a variety of exchange rate elasticities of international tourism. We show that, in addition to the bilateral exchange rate between the tourism origin and destination countries, the exchange rate vis-à-vis the US dollar is also an important driver of tourism flows and pricing. The effect of US dollar pricing is stronger for tourism destination countries with higher dollar borrowing, indicating a complementarity between dominant currency pricing and financing. Country-specific dominant currencies (CSDCs) play only a minor role for the average country, but are important for tourism-dependent countries and those with a high concentration of tourists. The importance of the dollar exchange rate represents a strong piece of evidence of dominant currency pricing (DCP) in the international trade of services and suggests that the benefits of exchange rate flexibility for tourism-dependent countries may be weaker than previously thought.
Dominant Currency Paradigm
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Author : Camila Casas
language : en
Publisher:
Release Date : 2016
Dominant Currency Paradigm written by Camila Casas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Exchange rate pass-through categories.
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer's currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) terms of trade are stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports and export expansions following depreciations are weak. Using merged firm level and customs data from Colombia we document strong support for the dominant currency paradigm and reject the alternatives of producer currency and local currency pricing.
Dominant Currency Pricing
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Author : Minkyu Son
language : ko
Publisher:
Release Date : 2023
Dominant Currency Pricing written by Minkyu Son and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
English Abstract: Using product-level data for Korean exports from 2000 to 2021, this paper examines the determinants of invoicing currency in international trade. We obtain robust evidence of the two underlying motives in export currency choice. First is strategic complementarities. Korean exports tend to be invoiced in a currency that is predominantly used by competitors in the market. Second is real hedging. Industries that rely on imported inputs denominated in a certain currency are more likely to invoice their exports in the currency of importing. These two channels would serve to maintain the Dominant Currency Pricing (DCP), in which just few currencies such as the US dollar play an outsized role in global trade. To further document the role of these two motives, we conduct a novel event study on the establishment of a direct foreign exchange market for the Korean won and the Chinese renminbi in 2014. The direct foreign exchange market stimulated renminbi invoicing among Korean exports, particularly more to destinations with high market shares of Chinese exporters, and more from Korean industries relying on renminbi-denominated imported inputs. Finally, as a key implication of invoicing currency, we confirm its close link with the degree of exchange rate pass-through. The destination prices of Korean exports are more sensitive to the dollar-destination currency exchange rate than the exchange rate between trading partners, due to its high reliance on dollars in export invoicing.
From Dominant To Producer Currency Pricing Dynamics Of Chilean Exports
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Author : Jose De Gregorio
language : en
Publisher:
Release Date : 2023
From Dominant To Producer Currency Pricing Dynamics Of Chilean Exports written by Jose De Gregorio and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
Global Trade And The Dollar
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Author : Ms.Emine Boz
language : en
Publisher: International Monetary Fund
Release Date : 2017-11-13
Global Trade And The Dollar written by Ms.Emine Boz and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-11-13 with Business & Economics categories.
We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1 percent U.S. dollar appreciation against all other currencies in the world predicts a 0.6–0.8 percent decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. 4) Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the importing country’s share of imports invoiced in dollars explains 15 percent of the variance of dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.
The Dominant Currency Financing Channel Of External Adjustment
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Author : Camila Casas
language : en
Publisher: International Monetary Fund
Release Date : 2023-08-11
The Dominant Currency Financing Channel Of External Adjustment written by Camila Casas and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-08-11 with Business & Economics categories.
We provide evidence of a new channel through which exchange rates affect trade. Using a novel identification strategy that exploits firms’ maturity structure of foreign currency debt around a large depreciation in Colombia, we show that firms experiencing a stronger debt revaluation of dominant currency debt due to a home currency depreciation compress imports relatively more while exports are unaffected. Dominant currency financing does not lead to an import compression for firms that export, hold foreign currency assets, or are active in the foreign exchange derivatives markets, as they are all hedged against a revaluation of their debt. These findings can be rationalized through the prism of a model with costly state verification and foreign currency borrowing. Quantitatively, the dominant currency financing channel explains a significant part of the external adjustment process in addition to the expenditure switching channel. Pricing exports in the dominant currency, instead of the producer’s currency, mutes the effect of dominant currency financing on trade flows.