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Export Performance, Invoice Currency and Heterogeneous Exchange Rate Pass-through


  • The authors wish to thank Statistics New Zealand for access to the data, Sophie Joyce for extremely able research assistance, and David Oxley, Enzo Cassino, Ilan Noy and Benjamin Mandel for feedback on the paper. Access to the data used in this study was provided by Statistics NZ in accordance with secrecy and confidentiality provisions of the Statistics Act 1975 and the Tax Administration Act 1994. The results in this paper have been confidentialised to protect individual persons and businesses from identification. See Fabling and Sanderson (2013) for the full disclaimer. The authors are solely responsible for the views expressed.


Using comprehensive, shipment-level merchandise trade data for a small, open economy, we examine heterogeneity in exporters' exchange rate pass-through (ERPT) behaviour. We draw together two recent studies of ERPT, linking invoice currency decisions and firm performance to heterogeneity in ERPT. Like these studies, we find that the short-run reaction of export unit values to exchange rate fluctuations is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, we then show that when the two factors are jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the producer currency, while others use either the local or a vehicle currency. In the short run, this translates into differences in exchange rate pass-through because of price rigidity in the invoice currency. Firm characteristics do not have an independent impact on pass-through beyond their effect on currency composition. Differences across invoice currencies diminish over time, but do not disappear, as prices adjust to reflect bilateral exchange rate movements.