@article{babb14f6f6da4db09a8332d978ef1eef,
title = "Domestic price dollarization in emerging economies",
abstract = "This paper studies the dollarization of prices in retail markets of emerging economies. We develop a model of the firm's optimal currency choice in retail markets in inflationary economies. We derive theoretical predictions regarding the optimality of dollar pricing, and test them using data from the largest e-trade platform in Latin America. Across countries, price dollarization is positively correlated with asset dollarization and inflation, and negatively correlated with exchange rate volatility. At the micro level, larger sellers are more likely to price in dollars, and more tradeable goods are more likely to be posted in dollars. We then show that the currency of prices determines the short-run reaction of both prices and quantities to a nominal exchange rate shock.",
keywords = "Currency choice, Dollar, Exchange rate, Pass-through, Prices",
author = "Andr{\'e}s Drenik and Perez, {Diego J.}",
note = "Funding Information: A previous version of this paper circulated under the title “Pricing in Multiple Currencies in Domestic Markets.” We thank Ariel Burstein, Giancarlo Corsetti, Javier Cravino, Oleg Itskhoki, Matteo Maggiori, Dmitry Mukhin, Brent Neiman, and seminar participants at Columbia University, the 2017 SED Meetings, NBER Summer Institute (IFM and EFMB), Minnesota Workshop in Macroeconomic Theory, NYU, Chicago Booth International Macro-Finance Conference, the 2018 AEA Meetings, and Harvard University for valuable comments. We also thank Luigi Caloi, Rafael Guntin, Gustavo Pereira, and Emilio Zaratiegui for excellent research assistance, and MercadoLibre and the Economics Department at Universidad de la Rep{\'u}blica (Uruguay) for sharing the data. Financial support from ISERP (Columbia University) is gratefully acknowledged. Funding Information: ? A previous version of this paper circulated under the title ?Pricing in Multiple Currencies in Domestic Markets.? We thank Ariel Burstein, Giancarlo Corsetti, Javier Cravino, Oleg Itskhoki, Matteo Maggiori, Dmitry Mukhin, Brent Neiman, and seminar participants at Columbia University, the 2017 SED Meetings, NBER Summer Institute (IFM and EFMB), Minnesota Workshop in Macroeconomic Theory, NYU, Chicago Booth International Macro-Finance Conference, the 2018 AEA Meetings, and Harvard University for valuable comments. We also thank Luigi Caloi, Rafael Guntin, Gustavo Pereira, and Emilio Zaratiegui for excellent research assistance, and MercadoLibre and the Economics Department at Universidad de la Rep?blica (Uruguay) for sharing the data. Financial support from ISERP (Columbia University) is gratefully acknowledged. Publisher Copyright: {\textcopyright} 2021 Elsevier B.V.",
year = "2021",
month = sep,
doi = "10.1016/j.jmoneco.2021.07.002",
language = "English (US)",
volume = "122",
pages = "38--55",
journal = "Journal of Monetary Economics",
issn = "0304-3932",
publisher = "Elsevier B.V.",
}