Has the Euro Affected the Choice of Invoicing Currency?

Abstract:     
We present a new approach to study empirically the effect of the introduction of the euro on the pattern of currency invoicing. Our approach uses a compositional multi-nomial logit model, in which currency choice is explained by both currency-specific and country-specific determinants. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996-2006 period. We find that eurozone countries have substantially increased their share of home currency invoicing after the introduction of the euro, whereas the home currency share of non-eurozone countries fell. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The substantial rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility and can only to a small extent be explained by an
unobserved euro effect.

Number of Pages in PDF File: 42

Keywords: euro, invoicing currency, exchange rate risk, inflation volatility, vehicle currencies, compositional multinomial logit

JEL Classification: F33, F41, F42, E31, C25

working papers series