Working Paper: CEPR ID: DP7534
Authors: Linda S. Goldberg; Cédric Tille
Abstract: The use of different currencies in the invoicing of international trade transactions plays a major role in the international transmission of economic fluctuations. Existing studies argue that an exporter?s invoicing choice reflects structural aspects of her industry, such as market share and the price sensitivity of demand, the hedging of marginal costs, due for instance to the use of imported inputs, and macroeconomic volatility. We use a new highly disaggregated dataset to assess the roles of the various invoicing determinants. We find support for the factors identified in the literature, and document a new feature, in the form of a link between shipments size and invoicing. Specifically, larger transactions are more likely to be invoiced in the importer?s currency. We offer a potential theoretical explanation for the empirical link between transaction size and invoicing by allowing invoicing to be set through a bargaining between exporters and importers, a feature that is absent from existing models despite its empirical relevance.
Keywords: International Trade; Invoicing; Currency Pass-through; Vehicle Currency
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand sensitivity (R22) | invoicing currency (F31) |
| market share (L17) | invoicing currency (F31) |
| transaction size (R12) | invoicing currency (F31) |
| commodity and energy inputs (Q02) | invoicing currency (F31) |
| exchange rate volatility (F31) | invoicing currency (F31) |
| dollar peg (F31) | invoicing currency (F31) |
| euro area (F36) | invoicing currency (F31) |