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Trade Invoicing in the Accession Countries: Are They Suited to the Euro?

In: NBER International Seminar on Macroeconomics 2005

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  • Linda S. Goldberg

Abstract

The accession countries to the euro area are increasingly binding their economic activity, external and internal, to the euro area countries. One aspect of this phenomenon concerns the currency invoicing of international trade transactions, where accession countries have reduced their use of the US dollar in invoicing international trade transactions. Theory predicts that the optimal invoicing choices for accession countries depend on the composition of goods in exports and imports and on the macroeconomic fluctuations of trade partners, both bearing on the role of herding and hedging considerations within exporter profitability. These considerations yield country-specific estimates about the degree of euro-denominated invoicing of exports. I find that the exporters of some accession countries, even in their trade transactions with the euro zone and other European Union countries, might be pricing too much of their trade in euros rather than in dollars, thus taking on excessive risk in international markets.

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This chapter was published in:

  • Jeffrey A. Frankel & Christopher Pissarides, 2007. "NBER International Seminar on Macroeconomics 2005," NBER Books, National Bureau of Economic Research, Inc, number fran07-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0361.

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    1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 7-35, June.
    2. Paul R. Krugman, 1979. "Vehicle Currencies And the Structure Of International Exchange," NBER Working Papers 0333, National Bureau of Economic Research, Inc.
    3. Alogoskoufis, G. & Portes, R. & Rey, H., 1997. "The Emergence of the Euro as an International Currency," DELTA Working Papers, DELTA (Ecole normale supérieure) 97-28, DELTA (Ecole normale supérieure).
    4. McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195024098, October.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 1-48, February.
    6. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1603-1635, August.
    7. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0304, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    8. Rey, Helene, 2001. "International Trade and Currency Exchange," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(2), pages 443-64, April.
    9. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports, Federal Reserve Bank of New York 200, Federal Reserve Bank of New York.
    10. Charles Engel, 2006. "Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(6), pages 1249-1260, December.
    11. Campa, José Manuel & Goldberg, Linda S & González Mìnguez, Jose Manuel, 2005. "Exchange Rate Pass-Through to Import Prices in the Euro Area," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5347, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Slavov, Slavi T., 2008. "Measuring and modeling the effects of G-3 exchange rate fluctuations on small open economies: A natural experiment," Economic Systems, Elsevier, Elsevier, vol. 32(3), pages 253-273, September.
    2. Lipinska, Anna, 2008. "The Maastricht Convergence Criteria and Monetary Regimes for the EMU Accession Countries," MPRA Paper 16375, University Library of Munich, Germany.
    3. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series, European Central Bank 0665, European Central Bank.
    4. Novy, Dennis, 2006. "Hedge Your Costs: Exchange Rate Risk and Endogenous Currency Invoicing," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 765, University of Warwick, Department of Economics.
    5. Ligthart, J.E. & Da Silva, J., 2007. "Currency Invoicing in International Trade: A Panel Data Approach," Discussion Paper, Tilburg University, Center for Economic Research 2007-25, Tilburg University, Center for Economic Research.
    6. Anna Lipinska, 2006. "Monetary regime choice in the accession countries - a theoretical analysis," Computing in Economics and Finance 2006, Society for Computational Economics 243, Society for Computational Economics.
    7. Elias Papaioannou & Richard Portes, 2008. "The international role of the euro: a status report," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 317, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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