The extensive margin of trade and monetary policy

Yuko Imura and Malik Shukayev ()

Journal of Economic Dynamics and Control, 2019, vol. 100, issue C, 417-441

Abstract: This paper studies the effects of monetary policy shocks on firms’ participation in exporting. The VAR analysis shows that the extensive margin of exports declines in response to domestic expansionary monetary shocks. We develop a two-country dynamic stochastic general equilibrium model in which heterogeneous firms make forward-looking decisions on whether to participate in the export market and prices are staggered across firms and time. We show that while lower interest rates and a currency depreciation associated with an expansionary monetary policy help to increase the value of exporting, the inflationary effects of the policy stimulus weaken the competitiveness of some firms, resulting in a contraction in firms’ export participation. In contrast, positive productivity shocks lead to a currency depreciation and an expansion in export participation at the same time. We show that, overall, the extensive margin is more sensitive to firms’ price competitiveness with other firms in the export market than to exchange rate movements or interest rates.

Keywords: Exporter dynamics; Monetary policy; Firm heterogeneity; Exchange rate (search for similar items in EconPapers)
JEL-codes: E52 F12 F44 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188919300193
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Extensive Margin of Trade and Monetary Policy (2018)
Working Paper: The Extensive Margin of Trade and Monetary Policy (2018)
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:eee:dyncon:v:100:y:2019:i:c:p:417-441

DOI: 10.1016/j.jedc.2019.01.002

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().