The Currency Denomination of External European Union Imports after European Union Expansion
Posted: 20 Dec 2009
Using a multiple market model I examine the impact of euro expansion on the optimal currency denomination of external EU imports. Results suggest euro invoicing will increase more in the EU-expansion country than in the original EU. Exporting firms from dollar bloc countries (the U.S. or countries with fixed exchange rates with the dollar) are more likely to invoice in the euro if price discrimination is already optimal. Firms from outside the dollar bloc are more likely to use the euro when the original EU market is relatively large or transaction costs of exchanging the euro are relatively small.
Keywords: Currency invoicing, Exchange rate, Inflation, EU expansion, Price discrimination
JEL Classification: F14, F31
Suggested Citation: Suggested Citation