How Important is the Currency Denomination of Exports in Open-Economy Models?

Abstract

The authors show that standard alternative assumptions about the currency in which firms price export goods are virtually inconsequential for the properties of aggregate variables, other than the terms of trade, in a quantitative open-economy model. This result is in contrast to a large literature that emphasizes the importance of the currency denomination of exports for the properties of open-economy models.

Keywords: local currency pricing, producer currency pricing, international relative prices, exchange rates, nontraded goods, distribution services

JEL Classification: F3, F41