Has the Euro Affected the Choice of Invoicing Currency?
CAMA Working Paper Series No. 03/2011
42 Pages Posted: 21 Feb 2011
Date Written: December 1, 2010
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
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