Price Setting Transactions and the Role of Denominating Currency in FX Markets

Riksbank Research Paper Series No. 32

Sveriges Riksbank Working Paper No. 201

39 Pages Posted: 25 Jun 2007

See all articles by Richard Friberg

Richard Friberg

Stockholm School of Economics - Department of Economics

Fredrik Wilander

Stockholm School of Economics - Department of Economics

Date Written: June 2007

Abstract

This report, commissioned by Sveriges Riksbank, examines the role of currency denomination in international trade transactions. It is divided in two parts. The first part consists of a survey of the price setting and payment practices of a large sample of Swedish exporting firms. The second part analyzes payments data from the Swedish settlement reports from 1999-2002. We examine whether invoicing patterns of Swedish and European companies changed following the creation of the EMU and how the currency denomination of exports differ from that of imports. Finally we consider the possibility that changes in invoicing patterns are correlated with changes in nominal exchange rates. Our main finding is that the same currency to a large extent is used for price setting, invoicing and payment for exports to third parties. We also find that the currency of the customer is the most used and that the euro is replacing the Swedish krona both in transactions with EMU-member countries but outside the EMU. Finally we find some evidence of a weak correlation between aggregate changes in invoicing patterns and changes in the trade weighted exchange rate over the period 1999-2002.

Keywords: Invoicing currency, exchange rate pass-through, price setting currency, exchange rate exposure, nominal rigidity

JEL Classification: F31, F41, G32

Suggested Citation

Friberg, Richard and Wilander, Fredrik, Price Setting Transactions and the Role of Denominating Currency in FX Markets (June 2007). Riksbank Research Paper Series No. 32; Sveriges Riksbank Working Paper No. 201. Available at SSRN: https://ssrn.com/abstract=995124 or http://dx.doi.org/10.2139/ssrn.995124

Richard Friberg (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Fredrik Wilander

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9602 (Phone)
+46 8 731 3207 (Fax)

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