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On the design of invoicing practices in international trade

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  • Jean-Marie Viaene
  • Casper Vries

Abstract

We advance an explanation for the choice of the invoice currency of international trade contracts on the basis of strategic bargaining considerations. The choice of the invoice currency originates in a situation in which each trader takes into account the other party's bargaining power. The latter depends on the individual discount factor, whether one is the first or second proposer, and whether one is on the short or long side of the market. Along these lines we explain the Grassman bias for trade contracts to be invoiced in the exporter's currency. Copyright Kluwer Academic Publishers 1992

Suggested Citation

  • Jean-Marie Viaene & Casper Vries, 1992. "On the design of invoicing practices in international trade," Open Economies Review, Springer, vol. 3(2), pages 133-142, June.
  • Handle: RePEc:kap:openec:v:3:y:1992:i:2:p:133-142 DOI: 10.1007/BF01886200
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    References listed on IDEAS

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    1. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, pages 494-503.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    3. Black, Stanley W., 1985. "International money and international monetary arrangements," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 22, pages 1153-1193 Elsevier.
    4. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    5. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 709-724.
    6. G. Basevi & D. Cocchi & P. L. Lischi, 1985. "The Choice of Currency in the Foreign Trade of Italy," Working Papers 17, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Grassman, Sven, 1973. "A fundamental symmetry in international payment patterns," Journal of International Economics, Elsevier, pages 105-116.
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    Citations

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    Cited by:

    1. Duarte, Margarida & Wolman, Alexander L., 2002. "Regional inflation in a currency union: fiscal policy vs. fundamentals," Working Paper Series 0180, European Central Bank.
    2. Ligthart, Jenny E. & Werner, Sebastian E.V., 2012. "Has the euro affected the choice of invoicing currency?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1551-1573.
    3. Linda S. Goldberg & Cédric Tille, 2009. "Micro, macro, and strategic forces in international trade invoicing," Staff Reports 405, Federal Reserve Bank of New York.
    4. Brown, M. & Ongena, S. & Yesin, P., 2008. "Currency Denomination of Bank Loans : Evidence from Small Firms in Transition Countries," Discussion Paper 2008-16, Tilburg University, Center for Economic Research.
    5. Bacchetta, Philippe & van Wincoop, Eric, 2005. "A theory of the currency denomination of international trade," Journal of International Economics, Elsevier, pages 295-319.
    6. Yung-Chul Park & Kwanho Shin, 2011. "Internationalisation of currency in East Asia: implications for regional monetary and financial cooperation," BIS Papers chapters,in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 180-197 Bank for International Settlements.
    7. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank.
    8. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, pages 59-76.
    9. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, pages 54-69.
    10. Brown, Martin & Ongena, Steven & Yesin, Pinar, 2009. "Foreign Currency Borrowing by Small Firms," CEPR Discussion Papers 7540, C.E.P.R. Discussion Papers.
    11. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 110-131, March.
    12. Philip Turner, 2012. "Macroprudential policies in EMEs: theory and practice," BIS Papers chapters,in: Bank for International Settlements (ed.), Financial sector regulation for growth, equity and stability, volume 62, pages 125-139 Bank for International Settlements.
    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. Hartmann, Philipp, 1998. "The Currency Denomination of World Trade after European Monetary Union," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 424-454, December.

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