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Local Currency Pricing versus Producer Currency Pricing: Direct Evidence from German Exporters

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  • Ralf Fendel
  • Michael Frenkel
  • Christoph Swonke

Abstract

. In new open‐economy macroeconomic models, the assumption on the pricing behavior of firms in international trade plays a central role. Whether firms apply producer currency pricing (PCP) or local currency pricing (LCP) crucially affects, for example, the design of optimal monetary policy or the choice of the optimal exchange rate system. However, empirical evidence has so far been mixed and is furthermore mostly of an indirect nature. This paper draws direct evidence on the price‐setting behavior of German exporters from a questionnaire‐based survey. We find that PCP applies in more integrated markets. Differences between LCP firms and PCP firms mainly exist with respect to the use of mark‐ups and in the validity of the law of one price for their respective products.

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  • Ralf Fendel & Michael Frenkel & Christoph Swonke, 2008. "Local Currency Pricing versus Producer Currency Pricing: Direct Evidence from German Exporters," German Economic Review, Verein für Socialpolitik, vol. 9(2), pages 160-179, May.
    • Handle: RePEc:bla:germec:v:9:y:2008:i:2:p:160-179
    DOI: 10.1111/j.1468-0475.2008.00429.x
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    3. Udo Broll & Frank Fuchs, 2009. "Fakturierung im sächsischen Außenhandel," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(04), pages 45-48, August.
    4. Janine Aron & Ronald Macdonald & John Muellbauer, 2014. "Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 101-143, January.
    5. Vlastimil Cadek & Helena Rottova & Branislav Saxa, 2011. "Hedging Behaviour of Czech Exporting Firms," Working Papers 2011/14, Czech National Bank.

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