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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 128:
On the Role of Pricing Exports in a Third Currency

Richard Friberg ()

Abstract: The share of Swedish exports that are invoiced in U.S. dollars has doubled comparing a sample from 1968 with figures from 1993. There has been no corresponding increase in Swedish trade with the United States. This serves as motivation for our interest in price setting/invoicing in a third currency. We investigate the role of pricing in the importers', exporter's or a third currency in a simple model with pre-set prices. The firm of study is a risk neutral monopolist exporter who faces a linear demand curbe. Expected prices, quantities and profits depend on the price setting currency chosen. Also the curvature of realised profits as a function of exchange rate surprises depends on the price setting currency chosen. In an extension we discuss the role of competition from a third country in a model of Bertrand competition in differentiated goods.

Keywords: Invoicing; exchange rate fluctuations; pricing of exports; (follow links to similar papers)

JEL-Codes: F14; F23; (follow links to similar papers)

35 pages, September 1996

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This paper is forthcoming as:
Friberg, Richard, 'In which currency should exporters set their prices', Journal of International Economics.



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