THE IMPACT OF TRADE CONFLICT ON MONETARY POLICY IN TARGET ECONOMIES

Xin-Xin Zhao, Jun Wen, Sumila Wanaguru and Chun-Ping Chang
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Xin-Xin Zhao: School of Economics and Finance, Xi’an Jiaotong University, P. R. China
Jun Wen: School of Economics and Finance, Xi’an Jiaotong University, P. R. China
Sumila Wanaguru: Central Bank of Sri Lanka, Sri Lanka
Chun-Ping Chang: Shih Chien University, Kaohsiung, Taiwan

The Singapore Economic Review (SER), 2024, vol. 69, issue 02, 567-590

Abstract: The nexus between trade conflict and monetary policy is of great importance in international political and economic analysis. By employing data from a panel of global countries covering the period 2000–2015, this paper empirically analyzes the impact of trade conflict on monetary policy and how it works. We document the evidence that trade conflict has caused targeted countries to implement loose monetary policy. We also find that the impact of trade conflict is not only effective in the current year, but also continues in the next five years. In addition, we show that the significant impact on monetary policy is manifested in non-OECD countries and transition countries but not in OECD countries and non-transition countries. Consequently, we believe our findings should shed light on those policy makers in target countries, who can hopefully prepare for potential trade conflict and avoid similar disputes from interfering with the effectiveness of monetary policies in the domestic economy by providing practical currency and valuation strategies.

Keywords: Trade conflict; monetary policy; OECD countries; transition countries (search for similar items in EconPapers)
JEL-codes: E50 F18 F62 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590821410022

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