Dominant currency paradigm†

Gita Gopinath, Emine Boz, Camila Casas, Federico J. Díez, Pierre Olivier Gourinchas, Mikkel Plagborg-Møller

Research output: Contribution to journalArticlepeer-review

151 Scopus citations


We propose a “dominant currency paradigm” with three key features: dominant currency pricing, pricing complementarities, and imported inputs in production. We test this paradigm using a new dataset of bilateral price and volume indices for more than 2,500 country pairs that covers 91 percent of world trade, as well as detailed firm-product-country data for Colombian exports and imports. In strong support of the paradigm we find that (i) noncommodities terms-of-trade are uncorrelated with exchange rates; (ii) the dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions, and this effect is increasing in the share of imports invoiced in dollars; (iii) US import volumes are significantly less sensitive to bilateral exchange rates, compared to other countries’ imports; (iv) a 1 percent US dollar appreciation against all other currencies predicts a 0.6 percent decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. We characterize the transmission of, and spillovers from, monetary policy shocks in this environment.

Original languageEnglish (US)
Pages (from-to)677-719
Number of pages43
JournalAmerican Economic Review
Issue number3
StatePublished - Mar 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


Dive into the research topics of 'Dominant currency paradigm†'. Together they form a unique fingerprint.

Cite this