DOMINANT CURRENCIES: HOW FIRMS CHOOSE CURRENCY INVOICING AND WHY IT MATTERS*
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Date
2022
Authors
Amiti, Mary
Itskhoki, Oleg
Konings, Jozef
Journal Title
Journal ISSN
Volume Title
Publisher
The Quarterly Journal of Economics
Abstract
We analyze how firms choose the currency of invoicing and the implications of this choice for exchange rate pass-through into export prices and quantities. Using a new data set for Belgian firms, we find currency invoicing to be an active firm-level decision, shaped by the firm’s size, exposure to imported inputs, and the currency choices of its competitors. Our results show that a firm’s currency choice, in turn, has a direct causal effect on the exchange rate pass-through into prices and quantities. Moreover, the differential price response of similar firms that invoice in different currencies is large, persists beyond a one-year horizon, and gradually wanes in the long run. This results in allocative expenditure-switching effects on export quantities, which build up over time, suggesting a role for quantity adjustment frictions in addition to price stickiness. Our findings shed light on the mechanisms that make or break a dominant currency and the consequences it has for the international transmission of shocks.
Description
Keywords
Type of access: Open Access, E31 - Price Level, Inflation, DeflationF31, Foreign ExchangeF41, Open Economy Macroeconomics
Citation
Amiti, M., Itskhoki, O., & Konings, J. (2022). Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters. Quarterly Journal of Economics, 137(3), 1435–1493. https://doi.org/10.1093/qje/qjac004