Has the Euro Affected the Choice of Invoicing Currency?

CAMA Working Paper Series No. 03/2011

42 Pages Posted: 21 Feb 2011

See all articles by Jenny E. Ligthart

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 Werner

Catholic University of Louvain (UCL)

Multiple version iconThere are 5 versions of this paper

Date Written: December 1, 2010

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.

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

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

Suggested Citation

Ligthart, Jenny E. and Werner, Sebastian, Has the Euro Affected the Choice of Invoicing Currency? (December 1, 2010). CAMA Working Paper Series No. 03/2011. Available at SSRN: https://ssrn.com/abstract=1765350 or http://dx.doi.org/10.2139/ssrn.1765350

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 Werner

Catholic University of Louvain (UCL) ( email )

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

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