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Has the Euro Affected the Choice of Invoicing Currency?

CentER Discussion Paper Series No. 2010-48

51 Pages Posted: 17 May 2010  

Jenny E. Ligthart

Tilburg University - CentER, Department of Economics; University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Sebastian E. V. Werner

Catholic University of Louvain (UCL)

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Date Written: May 12, 2010

Abstract

We present a new approach to study empirically the effect of the introduction of the euro on currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice depends on the characteristics of both the currency and the country. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996-2006 period. One of the key findings is that the eurozone countries in trade with Norway have substantially increased their share of home currency invoicing after the introduction of the euro. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The econometric analysis shows a significant effect of euro introduction above and beyond the determinants of currency invoicing (i.e., inflation rate, inflation volatility, foreign exchange market size, and product composition). However, the rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility.

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

JEL Classification: F14, F15, F31, F33, F36, E31, C25

Suggested Citation

Ligthart, Jenny E. and Werner, Sebastian E. V., Has the Euro Affected the Choice of Invoicing Currency? (May 12, 2010). CentER Discussion Paper Series No. 2010-48. Available at SSRN: https://ssrn.com/abstract=1609725 or http://dx.doi.org/10.2139/ssrn.1609725

Jenny E. Ligthart (Contact Author)

Tilburg University - CentER, Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 8755 (Phone)
+31 13 466 4032 (Fax)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Sebastian E. V. Werner

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

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