Abstract
In this paper, we examine producer prices to shed light on a number of outstanding issues in the understanding of price adjustment in the face of fluctuating exchange rates. First, we provide results that link two closely related literatures on firm characteristics and exchange rate pass-through, and currency of invoicing and pass-through. We show that there is significant within- and across-industry heterogeneity in the currency of invoice of exports of Canadian goods to the U.S. and, further, in the degree of pass-through to producer prices. Next, we exploit the fact that we observe firms that sell the same good to both the domestic and export markets, often in different currencies, to difference out the common marginal cost component of the prices. This allows us to relate markups to exchange rate movements and we find evidence that pricing-to-market is most prominent when firms are setting export prices in U.S. dollars.
