EconPapers    
Economics at your fingertips  
 

Trade, Unemployment, and Monetary Policy

Matteo Cacciatore and Fabio Ghironi

No 27474, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how trade linkages affect the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. We show that the ability of the model to replicate key empirical regularities following trade integration---synchronization of business cycles across trading partners and reallocation of market shares toward more productive firms---is central to understanding how trade costs affect monetary policy trade-offs. First, productivity gains through firm selection reduce the need of positive inflation to correct long-run distortions. As a result, lower trade costs reduce the optimal average inflation rate. Second, as stronger trade linkages increase business cycle synchronization, country-specific shocks have more global consequences. Thus, the optimal stabilization policy remains inward looking. By contrast, sub-optimal, inward-looking stabilization---for instance too narrow a focus on price stability---results in larger welfare costs when trade linkages are strong due to inefficient fluctuations in cross-country aggregate demand.

JEL-codes: E24 E32 E52 F16 F41 J64 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-int, nep-lab, nep-mac, nep-mon and nep-opm
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Cacciatore, Matteo & Ghironi, Fabio, 2021. "Trade, unemployment, and monetary policy," Journal of International Economics, Elsevier, vol. 132(C).

Downloads: (external link)
http://www.nber.org/papers/w27474.pdf (application/pdf)

Related works:
Journal Article: Trade, unemployment, and monetary policy (2021) Downloads
Working Paper: Trade, Unemployment, and Monetary Policy (2020) Downloads
Working Paper: Trade, Unemployment, and Monetary Policy (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27474

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27474

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:nbr:nberwo:27474