TY  - JOUR
AU  - Engel,Charles
TI  - Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11209
PY  - 2005
Y2  - March 2005
UR  - http://www.nber.org/papers/w11209
L1  - http://www.nber.org/papers/w11209.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu
AB  - Firms sometimes write price lists or catalogs for their exports, so they set prices for a period of time and do not adjust prices during that interval in response to changes in their environment. The firm sets the price either in its own currency or the importer's currency. This paper draws a simple link between the choice of currency, and the pricing decision of a firm that changes prices in response to all shocks. Specifically, if the latter firm's price has a lower variance in terms of its own currency than the importer's currency, then the firm with a price list will set the price in its own currency (and otherwise it will set price in the foreign currency.) This relationship is established by consideration of the firm with a price list as a special case of a firm that indexes its export price to the exchange rate.
ER  -