An empirical examination of the currency denomination of trade

The currency denomination of trade has important effects on inflation and the macroeconomic transmission of shocks. This study examines the currency denomination of Italian exports and imports with countries outside the European Union during 2010. By using a unique dataset we find evidence to suggest that invoicing currencies do not always have consistent determinants. Significant effects, new to the literature, include the massive, robust effect of geography and tax treaties, which suggest the importance of information asymmetry. The distance between trading partners has one of the largest marginal effects, increasing the likelihood of vehicle currency use relative to the euro.