 International energy trade and inflation dynamics: The role of invoicing currency use during the low carbon transitionHui Qiao, Ping Qin, Yang Liu and Yugang Yang Energy Economics, 2023, vol. 128, issue C Abstract: In most international energy trades, the US dollar is the invoicing currency. Our empirical and theoretical analysis examines how this affects inflation dynamics in energy trade. Empirical results reveal that countries’ with higher shares of trade invoiced in dollars would experience more inflation in their energy sector, primarily because of exchange rate fluctuations. Theoretical modeling, based on a new open economy Keynesian framework, demonstrates that when all products are priced in US dollars, imported inflation varies with exchange rates. We observe that the dominant issuer’s monetary policy has greater spillover effects than non-dominant countries. Furthermore, in a counterfactual analysis, we consider invoicing conventional energy products in dollars while invoicing renewable energy products in alternative currencies. The results highlight two benefits of currency coordination in renewable energy products: a domestic monetary policy would be more effective, and the foreign monetary policy produces fewer spillovers to domestic inflation. Keywords: Energy trade; Dominant-currency pricing; Inflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:128:y:2023:i:c:s014098832300676x DOI: 10.1016/j.eneco.2023.107178 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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