Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10477402 | Journal of International Economics | 2005 | 25 Pages |
Abstract
The currency denomination of international trade has significant macroeconomic and policy implications. In this paper we solve for the optimal invoicing choice by integrating this microeconomic decision at the level of the firm into a general equilibrium open economy model. Strategic interactions between firms play a critical role. We find that the less competition firms face in foreign markets, as reflected in market share and product differentiation, the more likely they will price in their own currency. We also show that when a set of countries forms a monetary union, the new currency is likely to be used more extensively in trade than the sum of the currencies it replaces.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Philippe Bacchetta, Eric van Wincoop,