2.3 Explicit and implicit hedging
While some firms may be constrained from adjusting prices in the short run, others may be insulated from the effects of exchange rate fluctuations through explicit hedging, ie, through financial market instruments. Similarly, natural hedges may exist for firms which have substantial reliance on imported inputs, which export in a range of currencies, or which are under foreign ownership.
In this paper we examine whether the price setting behaviour of New Zealand exporters appears to be affected differentially according to the presence of both explicit and natural hedges: whether the firm has a history of hedging exchange rate risk, whether they maintain a portfolio of export currencies, and whether they are foreign owned or controlled.[4] We do not consider imported inputs, as we cannot identify the share of indirect imports in intermediates.
Notes
- [4] We do not produce estimates according to whether a particular relationship is hedged,as hedging status may change over time in response to exchange rate fluctuations. See Fabling & Grimes (2008) for evidence of this among New Zealand exporters to Australia.
