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
CWPE1860
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: Giancarlo Corsetti Meredith Crowley
PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1860.pdf 
Open Access Link: https://doi.org/10.17863/CAM.79758
Open Code and Data link: https://www.econ.cam.ac.uk/research-files/data/Code_and_Data_for_IDPM_JIE2022.zip
Keynes Fund Project(s):
Credit Constraints and Optimal Price Setting in International Markets (JHOR)
Grant: Brexit Project
