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Trade invoicing in the accession countries: are they suited to the Euro?

  • Linda S. Goldberg

Countries aspiring to join the euro area-the so-called accession countries-are increasingly binding their economic activity, external and internal, to the euro-area countries. This phenomenon is observed in the currency invoicing of international trade transactions, where accession countries have reduced their use of the U.S. dollar in invoicing such transactions. According to theory, the optimal invoicing choice for an accession country depends on its composition of exports and imports and on the macroeconomic fluctuations faced by its trade partners, with both factors bearing out the role of herding and hedging considerations within exporter profitability. These considerations yield country-specific estimates of the optimal degree of euro-denominated invoicing of exports. I find that the exporters in some accession countries might be pricing too much of their trade in euros rather than in U.S. dollars, even in their trade transactions with the euro-area and other European Union countries, and thus may be taking on excessive risk in international markets.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 222.

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Date of creation: 2005
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Handle: RePEc:fip:fednsr:222
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  1. H Rey, 1997. "International Trade and Currency Exchange," CEP Discussion Papers dp0322, Centre for Economic Performance, LSE.
  2. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," NBER Working Papers 9543, National Bureau of Economic Research, Inc.
  3. Campa, Jose M. & Goldberg, Linda S. & Gonzalez-Minguez, Jose M., 2005. "Exchange-rate pass-through to import prices in the euro area," IESE Research Papers D/609, IESE Business School.
  4. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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  7. G Alogoskoufis & R Portes & H Rey, 1998. "The Emergence of the Euro as an International Currency," CEP Discussion Papers dp0388, Centre for Economic Performance, LSE.
  8. Paul R. Krugman, 1979. "Vehicle Currencies And the Structure Of International Exchange," NBER Working Papers 0333, National Bureau of Economic Research, Inc.
  9. Charles Engel, 2005. "Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing," NBER Working Papers 11209, National Bureau of Economic Research, Inc.
  10. Oi, Hiroyuki & Otani, Akira & Shirota, Toyoichiro, 2004. "The Choice of Invoice Currency in International Trade: Implications for the Internationalization of the Yen," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(1), pages 27-63, March.
  11. McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, number 9780195024098, March.
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