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Imported Inputs and Invoicing Currency Choice: Theory and Evidence from UK Transaction Data

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  • Wanyu Chung

Abstract

What determines the currency denomination of international trade? This is the first paper to consider in theory and data how exporters' dependence on imported inputs affects their choice of invoicing currency. My model predicts that exporters more dependent on foreign currency-denominated inputs are more likely to use foreign currency for pricing. Using a novel dataset that covers all UK trade transactions with non-EU countries, I provide firm-level evidence by matching import and export data and relate exporters' invoicing currency choice to their import behavior. I find considerable support for the model's predictions, and these findings have strong implications for the variation of exchange rate pass-through across industries.

Suggested Citation

  • Wanyu Chung, 2014. "Imported Inputs and Invoicing Currency Choice: Theory and Evidence from UK Transaction Data," Discussion Papers 2014-11, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:14/11
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    More about this item

    Keywords

    Invoicing Currency; Exchange Rate Pass-through; Trade in Intermediate Goods;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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