Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 132: Exchange Rates, Wages, and Export Price Dynamics

Pia Fromlet ()
Additional contact information
Pia Fromlet: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: In this paper, the effects on export prices (in the currency of the exporter) of shocks to the exchange rate, the exporting firms' costs and foreign prices are investigated. The theoretical analysis is done with alternative assumptions regarding the currency in which prices are set and the desired markup. After that, a VAR-framework is used to analyze which theory predicts actual outcome the best. The results indicate that export prices (in the currency of the exporter) respond strongly to exchange rate shocks and the effects seem to be in line with the theory of producer currency pricing and pricing to market. Wage shocks have insignificant effects.

Keywords: Vector autoregression; exchange rates; export prices; local currency pricing; producer currency pricing; pricing to the market

JEL-codes: E31; F14; F31

51 pages, November 26, 2013

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