Dollar Liquidity, Trade Invoicing, and Real Effects: Evidence from India

Javadekar, A and Tomar, S and Udupa, G (2021) Dollar Liquidity, Trade Invoicing, and Real Effects: Evidence from India. Working Paper. SSRN.

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Abstract

We provide causal evidence on the linkage between dollar liquidity and dollar invoicing exploiting an unanticipated shock to the dollar financing around the Taper Tantrum. Using the differential funding shock across countries, we test the impact of dollar liquidity on invoicing and imports by Indian firms using transaction-level data. We find that (i) firm-level dollar invoicing drops in response to dollar funding shock with corresponding rise in Euro and producer currency pricing, (ii) local presence of foreign banks allows Indian firms to smooth-out the liquidity shock, and (iii) firms transfer liquidity from one market to another using their internal capital markets to smooth-out country specific funding shocks. We document that firms unable to maintain the level of dollar invoicing are more likely to lose a trade connection.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
ORCiD
Javadekar, A
UNSPECIFIED
Tomar, S
UNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Dollar Invoicing, Taper Tantrum, Dollar Liquidity Shock
Subjects: Finance
Depositing User: Gurusrinivasan K
Date Deposited: 12 May 2021 01:32
Last Modified: 12 May 2021 01:32
URI: https://eprints.exchange.isb.edu/id/eprint/1480
Publisher URL: https://dx.doi.org/10.2139/ssrn.3806450
Publisher OA policy: https://dx.doi.org/10.2139/ssrn.3806450
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