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Corsetti, G., Crowley, M. A. and Han, L.

Invoicing and the Dynamics of Pricing-to-Market: Evidence from UK Export Prices around the Brexit Referendum

Journal of International Economics

Vol. 135 (2022)

Abstract: We provide micro-econometric evidence that, following the large and persistent sterling depreciation after the Brexit referendum, on impact, exchange rate pass-through (ERPT) was complete for transactions invoiced in producer currency and low for sales invoiced either in a vehicle or in the destination market currency. Yet these differences strikingly narrowed within six quarters. A weaker currency did not translate into a persistent gain in price competitiveness for UK exports. At a granular level we find that UK exporters invoice in multiple currencies—even when shipping a product to the same destination—and switch currencies over time. Remarkably, we fail to detect significant changes in the relative shares of invoicing currencies in response to the Brexit shock. Last but not least, we find that UK firms price-to-market, i.e., adjust markups to bilateral exchange rate and CPI movements, only when they invoice sales in the destination-market currency.

Keywords: dominant currency, exchange rate, firm level data, markup elasticity, pass through, vehicle currency

JEL Codes: F31, F41

Author links: Meredith Crowley  Giancarlo Corsetti  

Publisher's Link:

Keynes Fund Project(s):
Credit Constraints and Optimal Price Setting in International Markets (JHOR)  

Grant: Brexit Project

Cambridge-INET Working Paper Version of Paper: Invoicing and the Dynamics of Pricing-to-market - Evidence from UK Export Prices around the Brexit Referendum, Corsetti, G., Crowley, M. A. and Han, L. , (2018)