Currency Invoicing in International Trade: A Panel Data Approach

CentER Discussion Paper Series No. 2007-25

40 Pages Posted: 16 Jun 2007

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)

Jorge A. da Silva

University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Date Written: February 1, 2007

Abstract

The paper empirically investigates the determinants of currency invoicing in Dutch goods trade with OECD countries. To this end, a currency-share systems approach is employed, which is applied to quarterly panel data for 1987-1998. One of the key findings is that a country's share of producer currency pricing falls if demand in the foreign export market falls. In addition, we find that the better developed the partner country's banking sector and the larger its share in world trade, the lower is the share of Dutch guilder invoicing. A higher expected rate of inflation in the partner country increases Dutch guilder invoicing. The depth of the foreign exchange market of a currency, a country's share in world trade, and a country being part of the European Union are key determinants of vehicle currency use.

Keywords: invoicing currency, Grassman's law, exchange rate risk, local currency pricing, producer currency pricing, vehicle currencies

JEL Classification: F14, F31

Suggested Citation

Ligthart, Jenny E. and da Silva, Jorge A., Currency Invoicing in International Trade: A Panel Data Approach (February 1, 2007). Available at SSRN: https://ssrn.com/abstract=993084 or http://dx.doi.org/10.2139/ssrn.993084

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

Jorge A. Da Silva

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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