Currency Choice and Exchange Rate Pass-Through
Gita Gopinath, Oleg Itskhoki, Roberto Rigobon
American Economic Review · 2010 · Volume 100 · Issue 1
Abstract
We show, using novel data on currency and prices for US imports, that even conditional on a price change, there is a large difference in the exchange rate pass-through of the average good priced in dollars (25 percent) versus nondollars (95 percent). We document this to be the case across countries and within disaggregated sectors. This finding contradicts the assumption in an important class of models that the currency of pricing is exogenous. We present a model of endogenous currency choice in a dynamic price setting environment and show that the predictions of the model are strongly supported by the data. (JEL E31, F14, F31)
Keywords
Price Level, Inflation, Deflation, Country and Industry Studies of Trade, Foreign Exchange
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