Cover of Equivalence results for optimal pass-through, optimal indexing to exchange rates, and optimal choice of currency for export pricing

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Equivalence results for optimal pass-through, optimal indexing to exchange rates, and optimal choice of currency for export pricing

by Charles Engel

"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...

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