Macroeconomic Interdependence and the International Role of the Dollar

Linda S. Goldberg () and Cédric Tille ()

No 6704, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The U.S. dollar holds a dominant place in the invoicing of international trade, along two complementary dimensions. First, most U.S. exports and imports invoiced in dollars. Second, trade flows that do not involve the United States are also substantially invoiced in dollars, an aspect that has received relatively little attention. Using a simple center-periphery model, we show that the second dimension magnifies the exposure of periphery countries to the center's monetary policy, even when direct trade flows between the center and the periphery are limited. When intra-periphery trade volumes are sensitive to the center's monetary policy, the model predicts substantial welfare gains from coordinated monetary policy. Our model also shows that even though exchange rate movements are not fully efficient, flexible exchange rates are a central component of optimal policy.

Keywords: center-periphery; exchange rate pass-through; invoicing; monetary policy (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
Date: 2008-02
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Working Paper: Macroeconomic interdependence and the international role of the dollar (2008)
Working Paper: Macroeconomic Interdependence and the International Role of the Dollar (2008)
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