Dominant-Currency Pricing and the Global Output Spillovers from Us Dollar Appreciation

Georgiadis, Georgios; Schumann, Ben

doi:10.2139/ssrn.3437241

Cited by 3 publications

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“…Data on the invoicing structure of global trade allow an empirical assessment of which of these pricing paradigms is most relevant. Gopinath et al (2020), Zhang (2018) and Georgiadis and Schumann (2019) provide evidence that trade invoicing patterns indicate the currency in which trade prices are sticky in a global sample of countries. Earlier evidence focusing on individual countries is consistent with these findings.…”

Section: Expenditure Switching Channelmentioning

confidence: 95%

“…Here we do not consider the counterfactual case of full DCP, in which all exports and imports are priced in the dominant currency, as considered by Gopinath et al (2020). Instead, following the data, we consider a scenario of partial DCP in which only a part of exports and imports is priced in US dollars, and these shares of exports and imports may differ from country to country (see Georgiadis and Schumann, 2019). In general, the share of exports that are invoiced in US dollars is higher for emerging economies than for advanced economies.…”

Section: Dominant-currency Pricing Has Important Implications For The...mentioning

confidence: 99%

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Section: Expenditure Switching Channelmentioning

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Section: Dominant-currency Pricing Has Important Implications For The...mentioning

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Introducing dominant‐currency pricing in the ECB's global macroeconomic model

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Mösle

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A large share of global trade being priced and invoiced primarily in US dollar rather than the exporter's or the importer's currency has important implications for the transmission of shocks. We introduce this "dominant currency pricing" (DCP) into ECB-Global, the ECB's macroeconomic model for the global economy. To our knowledge, this is the first attempt to incorporate DCP into a major global macroeconomic model used at central banks or international organisations. In ECB-Global, DCP affects in particular the role of expenditure switching and the US dollar exchange rate for spillovers: In case of a shock in a non-US economy that alters the value of its currency multilaterally, expenditure switching occurs only through imports; in case of a US shock that alters the value of the US dollar multilaterally, expenditure switching occurs both in non-US economies' imports and-as these are imports of their trading partners-exports. Overall, under DCP the US dollar exchange rate is a major driver of global trade, even for transactions that do not involve the US. In order to illustrate the usefulness of ECB-Global and DCP for policy analysis, we explore the implications of the Euro rivaling the US dollar as a second dominant currency in global trade. According to ECB-Global, in such a scenario the global spillovers from US shocks are smaller, while those from euro area shocks are amplified; domestic euro area monetary policy effectiveness is hardly affected by the Euro becoming a second globally dominant currency in trade.

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Dominant-Currency Pricing and the Global Output Spillovers from Us Dollar Appreciation

Cited by 3 publications

References 0 publications

Monetary Policy and its Transmission in a Globalised World

Monetary Policy and its Transmission in a Globalised World

Role of National Currencies in Transforming International Monetary System

Introducing dominant‐currency pricing in the ECB's global macroeconomic model

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