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The currency denomination of external European Union imports after European Union expansion

  • Witte, Mark David

Using a multiple market model I examine the impact of euro expansion on the optimal currency denomination of external EU imports. Results suggest euro invoicing will increase more in the EU-expansion country than in the original EU. Exporting firms from dollar bloc countries (the U.S. or countries with fixed exchange rates with the dollar) are more likely to invoice in the euro if price discrimination is already optimal. Firms from outside the dollar bloc are more likely to use the euro when the original EU market is relatively large or transaction costs of exchanging the euro are relatively small.

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File URL: http://www.sciencedirect.com/science/article/B6W8Y-4WJBBSN-1/2/7d602bf349d88860c0cee688b40cb213
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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 3 (September)
Pages: 245-258

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:3:p:245-258
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  1. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2001. "Understanding European Real Exchange Rates," Vanderbilt University Department of Economics Working Papers 0120, Vanderbilt University Department of Economics.
  2. Black, Stanley W., 1991. "Transactions costs and vehicle currencies," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 512-526, December.
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  5. Ganslandt, Mattias & Maskus, Keith E., 2005. "Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets," Working Paper Series 639, Research Institute of Industrial Economics.
  6. Philippe Bacchetta & Eric van Wincoop, 2002. "A Theory of the Currency Denomination of International Trade," NBER Working Papers 9039, National Bureau of Economic Research, Inc.
  7. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
  8. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, vol. 100(1), pages 304-36, March.
  9. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  10. Floden, Martin & Wilander, Fredrik, 2006. "State dependent pricing, invoicing currency, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 70(1), pages 178-196, September.
  11. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
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