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The euro as invoicing currency in international trade

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  • Kamps, Annette
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    Abstract

    This paper investigates the determinants of currency invoicing in international trade. Although the currency of invoicing is central for the transmission of monetary policy, empirical research on this topic is scarce due to a lack of data. With a new extensive invoicing dataset and a panel model analysis this paper shows that a country’s membership or prospective membership of the EU plays a decisive role in the choice of the euro as invoicing currency. The role of the euro as vehicle currency is increasing but still limited when compared to the U.S. dollar. Monetary instability and low product differentiation favour vehicle pricing in U.S. dollar. An increase of euro invoicing due to higher exchange rate volatility supports the role of the euro as vehicle currency, however. High market power defined as the share of a country’s total exports to world exports and membership of the euro area make invoicing in the home currency (euro) more likely. JEL Classification: F41, F42, L11

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0665.

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    Date of creation: Aug 2006
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    Handle: RePEc:ecb:ecbwps:20060665

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    Keywords: Currency Invoicing; international trade; panel data;

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    Cited by:
    1. Gunther Schnabl, 2009. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," Open Economies Review, Springer, vol. 20(4), pages 565-587, September.
    2. Schnabl, Gunther, 2008. "Exchange rate volatility and growth in small open economies at the EMU periphery," Economic Systems, Elsevier, vol. 32(1), pages 70-91, March.
    3. Martin Hallet, 2008. "The role of the euro in Sub-Saharan Africa and in the CFA franc zone," European Economy - Economic Papers 347, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    4. Bj�rn D�hring, 2008. "Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective," European Economy - Economic Papers 299, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    5. Udo Broll & Frank Fuchs & Jack E. Wahl, 2007. "Fakturierung im Außenhandel," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 14(03), pages 23-28, 06.
    6. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
    7. Ke Pang & Yao Tang, 2014. "Vertical Trade, Exchange Rate Pass-Through, and the Exchange Rate Regime," Open Economies Review, Springer, vol. 25(3), pages 477-520, July.
    8. Beck, Roland & Kamps, Annette, 2009. "Petrodollars and imports of oil exporting countries," Working Paper Series 1012, European Central Bank.
    9. Jenny E. Ligthart & Sebastian E. V. Werner, 2011. "Has the Euro Affected the Choice of Invoicing Currency?," CAMA Working Papers 2011-03, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Warne, Anders, 2006. "Bayesian inference in cointegrated VAR models: with applications to the demand for euro area M3," Working Paper Series 0692, European Central Bank.
    11. Buzaushina, Almira & Enders, Zeno & Hoffmann, Mathias, 2014. "International Financial Market Integration, Asset Compositions and the Falling Exchange Rate Pass-Through," Working Papers 0569, University of Heidelberg, Department of Economics.
    12. Sek, Siok Kun & Kapsalyamova, Zhanna, 2008. "Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian countries," MPRA Paper 11130, University Library of Munich, Germany, revised 26 Oct 2008.
    13. Ligthart, J.E. & Da Silva, J., 2007. "Currency Invoicing in International Trade: A Panel Data Approach," Discussion Paper 2007-25, Tilburg University, Center for Economic Research.
    14. Linda Goldberg, 2011. "The international role of the dollar: Does it matter if this changes?," Staff Reports 522, Federal Reserve Bank of New York.

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