Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/38933 
Year of Publication: 
2010
Series/Report no.: 
CESifo Working Paper No. 3058
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
euro
invoicing currency
exchange rate risk
inflation
inflation risk
vehicle currencies
compositional multinomial logit
JEL: 
F14
F15
F31
F33
F36
E31
C25
Document Type: 
Working Paper
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