nep-ifn New Economics Papers
on International Finance
Issue of 2019‒01‒14
one paper chosen by
Vimal Balasubramaniam
University of Oxford

  1. Invoicing currency and exchange rate pass-through: evidence from firm level analysis of Italian firms By Alessandro Borin; Andrea Linarello; Elena Mattevi; Giordano Zevi

  1. By: Alessandro Borin (Bank of Italy); Andrea Linarello (Bank of Italy); Elena Mattevi (Bank of Italy); Giordano Zevi (Bank of Italy)
    Abstract: The paper analyzes how the choice of the invoicing currency used in international transactions by the Italian companies influences the transmission of exchange rates shocks to their price strategies and business activity. Companies invoicing in euros tend to not adjusting the prices of exported goods; in this case the exchange rate fluctuations are transmitted almost entirely to the prices of their goods in the destination countries, also inducing a large response of the exported volumes. On the other hand, companies that invoice in local currency transmit weakly the exchange rate fluctuations to prices in destination markets and therefore attenuate the impacts on exports volumes. Fixing prices in foreign currency is more frequent among larger and more productive companies, which tend to transfer the exchange rate shocks mostly on unit margins. Overall, despite the different transmission channels, the effect of exchange rate fluctuations on foreign turnover in euros, is quite similar among the different pricing strategies.
    Keywords: invoicing currency, exchange rate pass-through
    JEL: F3 F4
    Date: 2018–12

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