income and the use of prescription drugs by the elderly evidence from the notch cohorts we use exogenous variation in social security payments created by the social security benefits notch to estimate how retirees use of prescription medications responds to changes in their incomes using data from the 1993 wave of the ahead we obtain instrumental variables estimates of the income elasticity of prescription drug use that are uniformly above 1 00 with a middle estimate of 1 32 simulations based on our estimates suggest that reductions in social security benefits similar to those incorporated in recent reform proposals would significantly reduce prescription drug use among the elderly

the long term consequences of resource based specialisation using geological variation in oil abundance in the southern us i examine the long term effects of resource based specialisation through economic channels in 1890 oil abundant counties were similar to other nearby counties but after oil was discovered they began to specialise in its production from 1940 90 oil abundance increased local employment per square kilometre especially in mining but also in manufacturing oil abundant counties had higher population growth higher per capita income and better infrastructure 2010 the author s the economic journal 2010 royal economic society

currency internationalization and valuation effects based on the threshold model based on the three functions of currency internationalization including exchange medium pricing currency and foreign reserve this paper explores how the degree of currency internationalization a

estimating the permanent income elasticity of government expenditures evidence on wagner s law based on oil price shocks this paper provides instrumental variable estimates of the permanent income elasticity of government expenditures it uses annual variation in the international oil price weighted with countries average oil net export gdp shares as a plausibly exogenous source of within country variation in countries permanent income the short run estimates of the permanent income elasticity are robust across alternative specifications and are below one the estimated elasticity coefficients range between 0 3 and 0 6 and have standard errors of 0 1 and 0 4 respectively point estimates of long run elasticities are somewhat larger but still smaller than unity the investment component of government spending is found to be more elastic than the consumption component whereas elasticity differences between rich and poor countries are insignificant

executive effort and selection of risky projects this article examines the incentives of executives to adopt risky projects the agency problem considered is that of motivating the executive to expend effort to generate information about the profitability of projects and to select the best project conditional upon the information that his effort generates we show that the executive and the principal will not always agree regarding which project is best we provide conditions under which this conflict of interest leads from the principal s perspective to either an underinvestment or an overinvestment in risky projects

equality efficiency and market fundamentals the dynamics of international medical care reform public opinion surveys uniformly show low support for medical care systems in developed countries the longstanding conflict between equal access to care and efficient service provision partly explains this dissatisfaction but the trade off is particularly acute in medical care as new technologies developed over time have increased the cost of care and made the equity commitment even more expensive countries first dealt with rising costs by maintaining equal access and restricting total spending efficiency suffered however as a result many countries are considering a move away from spending controls and toward incentive based medical care reform

upper secondary school completion and the business cycle previous evidence suggests that enrollment in post compulsory education increases decreases in cyclical downturns upturns however little evidence exists on whether enrollment is successfully transformed into completed education this paper adds to the literature by analyzing the relationship between completion of upper secondary education and regional unemployment using norwegian regional panel data on students graduating from compulsory school between 1981 and 2004 we find robust evidence that completion rates are countercyclical our results suggest that poor labor market conditions when starting upper secondary education have a lasting effect and motivate students to stay in school and graduate

the savings multiplier we develop a theory of macroeconomic development based on the novel concept of savings multiplier capital accumulation changes relative prices and income shares between generations creating further incentives to accumulate and thereby rising saving rates as the economy develops the savings multiplier hinges on two mechanisms first accumulation raises wages and leads to redistribution from the consuming old to the saving young second higher wages raise the price of services consumed by the old and the anticipation of such price rise prompts the young to increase their savings our theory captures important aspects of china s development and suggests new channels through which the one child policy and the dismantling of cradle to grave social benefits have fuelled china s savings and accumulation rates

resource richness and economic growth in contemporary u s abstract we study the effects of energy innovation and policy on income growth between 1997 and 2014 us corn soybean and cotton production almost fully converted to genetically modified crops starting around 2007 improved tight oil and shale gas technologies turned the declining us fossil fuel production into a booming industry we study the effects of these two resource technology revolutions on us state income we find that the shale revolution increased income in states abundant in oil and gas resources states dependent on agricultural production also saw an increase in income which we however attribute not only to the gm innovation but to a demand increase brought by the energy policy act of 2005

an analysis of the use of accounting and market measures of performance in executive compensation contracts prior research has provided useful insights into the structure of compensation plans and their incentive effects however one important limitation of these studies is the virtual absence of any cross sectional analyses of the attributes of compensation contracts 2 this absence is related in part to the problems associated with controlling for other factors that affect compensation that is compensation contracts are

an empirical analysis of the renminbi exchange rates and cross border trade settlement we introduce a gravity model to the currency choice for cross border trade settlement and the heckman selection model to estimate the impact of the exchange rate on the cross border trade settlement of the renminbi rmb we analyse bilateral exchange rates using panel data of china and 182 rmb settlement countries or areas from 2009 to 2014 we find that regardless the choice stage or scale stage of rmb cross border trade settlement the appreciation of the rmb does not necessarily promote rmb cross border trade settlement this result holds when we take geographic differences into account and split the settlement of cross border trade into merchandise and service trade we further investigate the channels through which exchange rate influences the cross border trade settlement of rmb and we find that the appreciation of rmb impedes enterprises from choosing rmb as their settlement currency by reducing the scale of export to rmb settlement areas whereas it speeds up rmb cross border trade settlement by increasing the scale of china s import from rmb settlement areas we find that china s economic strength supports the development of rmb cross border trade settlement however the geographical distance between china and the rmb settlement areas may inhibit cross border trade settlement in rmb

the effects of natural resources on urbanization concentration and living standards in africa summary this paper examines the effects of natural resource abundance on urbanization and living standards in africa our central hypothesis is that the exploitation of natural resources in a context of poor governance quality creates the conditions for rapid urbanization and urban concentration and ultimately lowers living standards in primal cities using a large panel of african countries our results show that an increase in the share of natural resources leads to a rapid increase in urbanization and urban concentration even after taking into account endogeneity issues or after using more exogenous measures of resource dependency the paper also establishes a negative association between the resource abundance the quality of life in large cities and the degree of informality via the increase in urbanization rate and urban concentration importantly we have established that these results mostly hold in the context of bad governance more specifically the resource led urbanization and concentration booms take place mainly in countries characterized by poor governance records furthermore poor governance quality is associated with a more detrimental effect of urbanization and urban concentration on the quality of life in african cities these results suggest that ongoing transformations experienced by these countries call for complementary policies to ensure a more balanced and efficient urbanization process

social security income and health care spending evidence from the social security notch the paper exploits social security legislation changes to identify the causal effect of social security income on out of pocket medical expenditures of the elderly using the 1986 1994 consumer expenditure survey and an instrumental variables strategy the empirical results show that health care expenditures are responsive to changes in social security income for elderly individuals with less than a high school education the estimated income elasticities are between 1 41 and 3 47 depending on the outcome measures and are statistically significant at conventional levels the findings are in contrast to existing studies that find a small income elasticity at the individual household level this article is protected by copyright all rights reserved

local natural resources and crime evidence from oil price fluctuations in texas abstract we exploit plausibly exogenous changes in the value of reserves in texas s giant oil fields to determine the impact of crime in texas counties that have reserves texas provides an ideal setting for this research strategy first texas has the largest number of giant oil fields second texas s giant oil fields possess the greatest remaining oil potential third giant oil fields are dispersed throughout the state we find that a 1 increase in the value of oil reserves increases murder by 0 16 robbery by 0 55 and larceny by 0 18 using the estimated elasticities an average increase in the value of oil reserves 26 increase in the value of reserves results in a 4 15 increase in murder rates 8 increase in robbery and 4 7 increase in larceny these effects are not trivial we explore potential mechanisms that could be driving this increase in crime and find that an increase in the value of local oil reserves improves the local economic conditions increases the share of young males and increases the share of individuals residing in group quarters e g temporary worker housing of its county with no effect on the local economic conditions demographic changes or crime rates of adjacent counties

static and dynamic effects of health policy evidence from the vaccine industry public policies designed to increase utilization of existing technologies may also affect incentives to develop new technologies this paper investigates this phenomenon by examining policies designed to increase usage of preexisting vaccines i find that these policies were associated with a 2 5 fold increase in clinical trials for new vaccines for several diseases the induced innovation is socially wasteful though small in magnitude in one case however the dynamic social welfare benefits from induced innovation exceed the policies static benefits from increasing vaccination with existing technology these findings underscore the importance of including technological progress in economic analysis of public policy

migration flows in commodity cycles assessing the role of migration policies this paper sheds light on the role of immigration policies in shaping immigration flows in responses to labor market changes using data from australia during the 2001 to 2015 commodity cycle as a quasi experiment we find that employer sponsored demand driven immigration varied in line with commodity prices with commodity intensive states witnessing stronger growth rates than remaining states over the resources boom period there is no evidence of any such patterns for points based supply driven immigrants moreover we do not find either employer sponsored or point based migration flows increase in non tradable sector in relative to tradable sector in the triple differences analysis with state industry level data these findings emphasize the importance of employer sponsored immigration in alleviating short term local labor shortages c 2020 elsevier b v all rights reserved

contracts without memory in multiperiod agency models abstract settings are considered in which optimal multiperiod contracts can have no memory i e where second period payments do not need to depend on first period outcomes if contracts have no memory a repeated agency game can be played myopically there are no gains to long term relationships conditions on preferences for a no memory contract are presented in an agency game with moral hazard on the act selection preference separability and domain additivity imply the existence of a no memory contract in a setting without moral hazard but with asymmetric information on the outcome domain additivity implies no memory

explaining the decline of the u s saving rate the role of health expenditure between 1980 and 2007 the u s personal saving rate declined from 11 percent to 3 percent in this paper we provide evidence that most of the decline can be explained by rising health expenditures we rst employ reduced form methods and exogenous variation in medical expenses generated by fda drug approvals to document that a 1 percentage point increase in health expenditure generated a decline in the saving rate that is between 0 73 and 0 89 percentage points using this result we calculate that the rise in health expenditure explains about 90 percent of the drop in the saving rate we then develop and estimate a model of consumption saving and health decisions to evaluate which mechanisms are behind the decline using the estimated model we document that the rise in medical expenses and drop in the saving rate are driven mainly by progress in health technology during the years 1995 2010 by the reduction in co payment rates in the period 1986 1994 and by improvements in income processes for the years 1980 1985

income and health spending evidence from oil price shocks health expenditures as a share of gdp in the united states have more than tripled over the past half century a common conjecture is that this is a consequence of rising income we investigate this hypothesis by instrumenting for local area income with time series variation in oil prices interacted with local oil reserves this strategy enables us to capture both partial equilibrium and local general equilibrium effects of income on health expenditures our central income elasticity estimate is 0 7 with 1 1 as the upper end of the 95 confidence interval which suggests that rising income is unlikely to be a major driver of the rising health expenditure share of gdp 2013 the president and fellows of harvard college and the massachusetts institute of technology

medical care costs how much welfare loss hardly a week goes by without a front page newspaper article on rising health care costs and the uninsured in this article i focus mainly on costs arguing that the issue has been somewhat misconceived while the level of medical care spending in the u s is a cause for concern the welfare losses associated with rises in that level of spending may not be as large as the public rhetoric can make them seem in fact cost containment may not be as urgent as is widely supposed and some proposed cost containment policies may result in welfare losses for the insured and even increase the number of uninsured

the economic impact of the coal boom and bust in this paper we examine the impact of the coal boom in the 1970s and the subsequent coal bust in the 1980s on local labour markets in kentucky ohio pennsylvania and west virginia we address two main questions in our analysis how were non mining sectors affected by the shocks to the mining sector how did these effects differ between sectors producing local goods and those producing traded goods we find evidence of modest employment spillovers into sectors with locally traded goods but not into sectors with nationally traded goods

equilibrium bias of technology this paper presents three sets of results about equilibrium bias of technology first i show that when the menu of technological possibilities only allows for factor augmenting technologies the increase in the supply of a factor induces technological change relatively biased toward that factor meaning that the induced technological change increases the relative marginal product of the factor becoming more abundant moreover this induced bias can be strong enough to make the relative marginal product of a factor increasing in response to an increase in its supply thus leading to an upward sloping relative demand curve i also show that these results about relative bias do not generalize when more general menus of technological possibilities are considered second i prove that under mild assumptions the increase in the supply of a factor induces technological change that is absolutely biased toward that factor meaning that it increases its marginal product at given factor proportions the third and most important result in the paper establishes the possibility of and conditions for strong absolute equilibrium bias whereby the price marginal product of a factor increases in response to an increase in its supply i prove that under some regularity conditions there will be strong absolute equilibrium bias if and only if the aggregate production function of the economy fails to be jointly concave in factors and technology this type of failure of joint concavity is possible in economies where equilibrium factor demands and technologies result from the decisions of different agents

is health care really a luxury much of the work which has led to a widely held view that the income elasticity of health care spending exceeds one has been based on international cross section data or on pooled cross sections and time series in this paper we re examine this view in the context of long run equilibrium relationships between non stationary time series possibly including autonomous trends our results cast doubt upon the usefulness of pooling and upon the notion of an elasticity above one

export price shocks and rural labor markets the role of labor market distortions abstract to what extent can workers in developing countries seize gains from trade to answer this question we resort to a unique exogenous labor demand shock triggered by a surge in the world market price of cotton in 2010 11 by capitalizing on tajikistan s geographic variation in the suitability for cotton production we identify the effect of the export price hike on wages of rural workers the shock induces agricultural firms to shift towards labor intensive cotton production the subsequent greater labor demand doubles wages for female cotton pickers on small entrepreneurial private farms but does not affect their wages on large parastatal farms we present evidence that parastatal farms recruit workers for low wages based on monopsony power and expand employment based on labor coercion of children and public sector workers our results highlight the importance of accounting for competitive structures in local labor markets when assessing the wage pass through of world market prices to workers in developing countries

political extremism and economic activity abstract we study the effect of economic activity on the vote share of extremist political parties in europe using a model that addresses the prevalent endogeneity problem which is likely to have discouraged similar research we find that small fluctuations in income per capita have significant inverse effects on the vote share of far right parties our results explain the widespread success of such parties in entering european parliaments following the 2007 2008 crisis they also suggest that ceteris paribus far right parties on the margin of electoral thresholds run the risk of losing parliamentary representation in the face of a steadily recovering world economy

remittances and public finances evidence from oil price shocks we study the effect of inflowing remittances a major source of capital for many countries on tax revenues and tax policy instrumenting remittances with changes in the oil price interacted with a country s distance to oil producing countries we find that remittances have a large positive effect on vat revenues but no effect on income tax revenues this suggests that remittances often escape the income tax but can be taxed via consumption we further show that tax policy is responsive to shocks in incoming remittances remittances make the adoption of vat systems more likely and they lead to lower vat rates and higher income tax rates

health spending and public pension evidence from panel data abstractthis article empirically investigates the determinants of aggregate health expenditure in a panel of oecd countries from 1980 to 2005 we differ from most existing studies by testing some new determinants motivated by recent theoretical advances in the literature we find that a one percentage increase in public pension payments per elderly person leads to approximately a one third percentage increase in aggregate health spending and this effect is significant and robust across a variety of model specifications a back of the envelope calculation based on this estimate suggests that the expansion of the public pension programme on average accounts for approximately over one fifth of the rise in aggregate health expenditure as a share of gdp in the set of oecd countries during 1980 2005 in addition we find that the estimated effect of gdp per capita in our model ranges from 0 66 to 0 80 which is consistent with the results from some recent studies and thus further reinforces the finding in the

the aggregate effects of health insurance evidence from the introduction of medicare this paper investigates the effects of market wide changes in health insurance by examining the single largest change in health insurance coverage in american history the introduction of medicare in 1965 i estimate that the impact of medicare on hospital spending is over six times larger than what the evidence from individual level changes in health insurance would have predicted this disproportionately larger effect may arise if market wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles i present some evidence of these types of effects a back of the envelope calculation based on the estimated impact of medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period

evidence of asymmetric behavioral responses to changes in gasoline prices and taxes for different fuel types abstract using monthly data from the spanish gasoline retail market we explore asymmetries in consumers behavioral responses to changes in gasoline prices and taxes in particular we are interested in investigating whether an increase in gasoline taxes has a more negative impact on the demand than a similar in magnitude increase in the pre tax price of gasoline for different fuel types we estimate fuel consumers responses using a rich set of robust panel data models considering potential dynamic effects and endogeneity problems we find evidence to confirm the existence of asymmetric responses for the demand of unleaded fuels and agricultural diesel fuel however we cannot support this statement for the regular diesel case for this fuel both the tax exclusive price and the tax elasticities are roughly the same this result agrees with the fact that diesel drivers tend to be better informed about changes in both fuel prices and taxes some implications in terms of fiscal policy and pollution and climate change policy are also discussed

micro macro and strategic forces in international trade invoicing synthesis and novel patterns abstract the currency used in invoicing international trade matters for the impact of exchange rate movements in the presence of price rigidities we present stylized facts on specific macro micro and other drivers of invoicing based on 45 million canadian import transactions four main results emerge first a large share of invoicing takes place in vehicle currencies that are neither the exporters nor the importers second we document a novel link between the size of individual transactions and invoicing both the absolute value of a transaction and its relative size at the industry level matter third the exchange rate plays an important role along three dimensions exchange rate volatility exchange rate regime and currency transaction volumes in foreign exchange markets finally we confirm the role of the market share of an exporting country at the industry level our results identify the most salient patterns in order to guide further developments in theoretical models of invoicing currency choice

the value of life and the rise in health spending over the past half century americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result debate on health policy often focuses on limiting the growth of health spending we investigate an issue central to this debate is the growth of health spending a rational response to changing economic conditions notably the growth of income per person we develop a model based on standard economic assumptions and argue that this is indeed the case standard preferences of the kind used widely in economics to study consumption asset pricing and labor supply imply that health spending is a superior good with an income elasticity well above one as people get richer and consumption rises the marginal utility of consumption falls rapidly spending on health to extend life allows individuals to purchase additional periods of utility the marginal utility of life extension does not decline as a result the optimal composition of total spending shifts toward health and the health share grows along with income in projections based on the quantitative analysis of our model the optimal health share of spending seems likely to exceed 30 percent by the middle of the century

the economic effects of energy price shocks large fluctuations in energy prices have been a distinguishing characteristic of the u s economy since the 1970s turmoil in the middle east rising energy prices in the u s and evidence of global warming recently have reignited interest in the link between energy prices and economic performance this paper addresses a number of the key issues in this debate what are energy price shocks and where do they come from how responsive is energy demand to changes in energy prices how do consumers expenditure patterns evolve in response to energy price shocks how do energy price shocks affect u s real output inflation and stock prices why do energy price increases seem to cause recessions but energy price decreases do not seem to cause expansions why has there been a surge in the price of oil in recent years why has this new energy price shock not caused a recession so far have the effects of energy price shocks waned since the 1980s and if so why as the paper demonstrates it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets when answering these questions

the impact of fracking activities on oklahoma s housing prices a panel cointegration analysis abstract fracking drilling has opened a discussion on the role of technological developments in economies engaged in shale oil and gas formations oil and natural gas production opened new possibilities for employment benefits and housing prices decreases this paper explores for the first time the impact of fracking on housing prices across oklahoma s counties spanning the period 2000 2015 through panel methods the findings show a positive effect on housing prices while this positive effect gains statistical significance only over the period after the 2006 fracking boom the results survive a robustness check that explicitly considers distance and groundwater dependency issues

reference health and the demand for medical care we propose that health in prior periods termed reference health is theoretically and empirically relevant to the demand for medical care to address non normality in the distributions of medical care spending consumption and health we use a conditional density estimator nested in a finite mixture framework we find that reference health can help explain the variation in spending among individuals with the same contemporaneous health particularly in the top tail of the spending distribution we demonstrate that omitting reference health understates the potential cost savings of healthy aging initiatives by 50 percent this article is protected by copyright all rights reserved

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

income and population growth do populations grow as countries become richer in this study we estimate the effects on population growth of shocks to national income that are plausibly exogenous and unlikely to be driven by technological change for a panel of over 139 countries spanning the period 1960 2007 we interact changes in international oil prices with countries average net export shares of oil in gdp controlling for country and time fixed effects we find that this measure of oil price induced income growth is positively associated with population growth the iv estimates indicate that a 1 percentage point increase in gdp per capita growth over a 10 year period increases countries population growth by around 0 1 percentage points furthermore we find that this population effect results from both a positive effect on fertility and a negative effect on infant and child mortality

catching up with the economy in his presidential address five years ago zvi griliches 1994 called attention to the severe difficulties that beset current attempts to measure the growth of labor productivity in the american economy because of these difficulties it is likely that the true rate of economic growth is substantially underestimated the root of the problem is the difficulty in measuring output in the service sector which now represents two thirds of the economy in such sectors as health care and information services the contribution to gross domestic product gdp is measured by inputs rather than outputs a procedure that makes it impossible to gauge accurately improvements in the quality of output thus in the case of computers which are transforming american society economists have been unable so far to find a measurable contribution of computers to the rise in labor productivity an astonishing paradox i want to follow up on this problem of mismeasurements my thesis is that the profession

in which currency should exporters set their prices this paper studies the choice of price setting currency for an exporter faced with the choice of setting price in his own in the importers or a third currency under exchange rate uncertainty we establish that sufficient conditions on demand and cost functions for exchange rate pass through to be less than unity under certainty are also sufficient conditions for price setting in the importer s currency to yield the highest expected profit under exchange rate uncertainty under the same conditions on demand and cost functions setting price in the importer s currency maximizes expected utility when risk aversion and forward currency markets are introduced

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

book rate of return and prediction of earnings changes an empirical investigation over the years there has developed a fairly substantial body of research on the time series of earnings as a whole this literature concludes that changes in annual accounting earnings are unpredictable that is earnings follow a random walk 1 based on this result some inferences of economic substance policy have been claimed 2 in this paper we reconsider empirical issues which at least to some extent have been obscured by this conclusion we argue that the above result is only true in a limited sense since a modest enlargement of the predictive information set should allow for a rejection of the hypothesis that earnings changes are

mining away the preston curve summary i estimate the long term national health and education impacts of having a larger mining share in the economy by instrumenting the relative size of the mining sector with the natural geological variation in countries fossil fuel endowments i provide evidence suggestive of a causal relationship the findings suggest that countries with larger mining shares tend to have poorer health and education outcomes than countries with similar per capita incomes geographic characteristics and institutional quality doubling the mining share of an economy corresponds to on average the infant death rate being 20 higher life expectancy being 5 lower total years of education being 20 lower and 70 more people having no formal education divergences from the preston curve the concave relationship between cross country income and life expectancy that has long been of interest to economists demographers and epidemiologists are thus partly explained by the size of the mining sector within country evidence from indonesia paints a similar picture my results provide support for a growing body of evidence linking mining to poorer average living standards particularly vis a vis other types of income i also estimate the effects of national mining dependence on non mining income health and education investment and institutions

analysis on the determinants of currency invoicing in korean trade we investigate the determinants of currency invoicing in trade using import and export transactions data between korea and its 30 major trading partners from 2000 to 2013 we find a noticeably different pattern of currency invoicing from advanced countries for example a large market share of korean exporters in partner countries does not guarantee more use of the korean won in currency invoicing this might be attributed to a low degree of korean won s internationalisation and the strong coalescing effect we also observe that the higher the level of industry product differentiation the weaker the coalescing motive in addition we verify that the share of invoicing in the currency of korea s trading partner tends to be higher when the partner country has i a larger trade volume ii higher level of financial development iii lower inflation and lower price volatility and iv its own currency with lower transaction costs

equivalence results for optimal pass through optimal indexing to exchange rates and optimal choice of currency for export pricing firms sometimes write price lists or catalogs for their exports so they set prices for a period of time and do not adjust prices during that interval in response to changes in their environment the firm sets the price either in its own currency or the importer s currency this paper draws a simple link between the choice of currency and the pricing decision of a firm that changes prices in response to all shocks specifically if the latter firm s price has a lower variance in terms of its own currency than the importer s currency then the firm with a price list will set the price in its own currency and otherwise it will set price in the foreign currency this relationship is established by consideration of the firm with a price list as a special case of a firm that indexes its export price to the exchange rate jel f4 f1