Corridor Invoicing: Real Hedging in International Trade

Emanuele Brancati (), Marco Brianti, Jaromir Nosal and Fabio Schiantarelli ()
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Emanuele Brancati: Sapienza University of Rome
Marco Brianti: University of Bologna
Jaromir Nosal: Boston College
Fabio Schiantarelli: Boston College

No 18943, IZA Discussion Papers from IZA Network @ LISER

Abstract: Using the universe of Italian customs from 2000 to 2021, matched to firm balance-sheets, we study how invoicing currency shapes exchange-rate exposure and profitability for two-sided trading firms. We document four facts. First, when a firm begins invoicing imports in dollars, it becomes far more likely to invoice exports in dollars the same year, with import-side adoption leading. Second, this matching is bilateral: a firm importing from a country in dollars disproportionately invoices exports to that country in dollars, a corridor structure that aggregate hedging cannot rationalize. Third, corridor alignment reduces profit variance beyond what aggregate net dollar exposure explains. Fourth, exchange-rate movements transmit to profits mainly through transactions rather than balance-sheet revaluation, and dollar-invoiced import quantities rise after a euro depreciation, concentrated in inputs linked to exports. We interpret these facts through a model of invoicing currency choice with a rich sourcing and export destination structure, driven by price-stability motives and the incentive to hedge country-specific risk. In the richest framework, invoicing currency choice is a real hedge against country risk, not only currency risk.

Keywords: invoicing currency; exchange rate pass-through; corporate hedging; firm profitability; exchange rate exposure (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2026-09
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