Replication Data and Code for: "Dominant Currency Paradigm"

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 data set of bilateral price and volume indices for more than 2,500 country pairs that covers 91% 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: (1) Non-commodities terms of trade are uncorrelated with exchange rates. (2) The dollar ex- change 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. (3) U.S. import volumes are significantly less sensitive to bilateral exchange rates, compared to other countries’ imports. (4) A 1% U.S. dollar appreciation against all other currencies predicts a 0.6% decline within a year in the volume of total trade between coun- tries 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.