Description

We revisit a central question for international macroeconomics: the response of export prices and quantities to movements in the exchange rate (ER). We use granular export data for Chile and study how the effects of ER movements vary over time with the currency of invoicing and the destination of exports. For prices, we find that the short-run effects of bilateral ER movements vanish when controlling for U.S. dollar ER, which supports the dominant currency paradigm. However, over longer horizons a more significant role is played by bilateral ER movements, lending support instead to producer currency pricing. These dynamics do not depend on the invoicing currency. The results we find for quantities support the view that bilateral exchange rate movements contribute to macroeconomic adjustment through export volumes.