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Does Leaving the Eurozone Mean Leaving the Euro?

Author

Listed:
  • Frank Hefner

    (College of Charleston)

  • Mark David Witte

    (College of Charleston)

Abstract

Events in the Eurozone have raised the possibility that a Eurozone member departs the currency union. We devise a simulation to examine whether trading firms in the departed country will continue to invoice their product in the Euro or elect another currency denomination strategy. Because trading firms have flexibility in choosing their invoicing currency, they make an excellent case for studying the currency usage patterns of other economic actors that may emerge after Eurozone departure. Results suggest that greater price discrimination leads to more use of the buyer’s currency while firms that set only one price will tend to denominate that price in the U.S. dollar. Low exchange rate volatility between the exiting country’s new currency and the Euro leads to more Euro usage.

Suggested Citation

  • Frank Hefner & Mark David Witte, 2016. "Does Leaving the Eurozone Mean Leaving the Euro?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 279-294, August.
  • Handle: RePEc:kap:iaecre:v:22:y:2016:i:3:d:10.1007_s11294-016-9589-5
    DOI: 10.1007/s11294-016-9589-5
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Currency invoicing; European Union; Currency union; Exchange rate volatility; Price discrimination;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General

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