Does Monetary Policy Matter For Trade?

Terence Tai Leung Chong and Kin Ming Wong ()

MPRA Paper from University Library of Munich, Germany

Abstract: There is a large literature on the effect of exchange rate arrangements on trade. The monetary policy used in the floating exchange rate regime, however, is usually ignored and unidentified in the empirical studies. This makes the effect of alternative monetary policy regimes on trade remains largely unknown. This paper sheds light on this area by examining the effect of two well-defined monetary policy regimes, namely exchange-rate targeting and inflation targeting regimes, on bilateral and multilateral trade. Our result suggests a moderate positive effect of inflation targeting policy on bilateral trades between two inflation targeting countries. This effect of inflation targeting, even much moderate than the effect of currency union and a fixed exchange rate at the bilateral level, could exist in the bilateral trades with a large number of trading partners under the same regime. This implies that inflation targeting regime may not have a lower level of multilateral trade than exchange-rate targeting regime. We further support this view with an analysis of multilateral trade.

Keywords: Monetary Policy Regimes; Inflation Targeting; Exchange-rate Targeting; Gravity Model; Trade (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 F14 (search for similar items in EconPapers)
Date: 2015-04-12
New Economics Papers: this item is included in nep-cba, nep-int, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/63502/1/MPRA_paper_63502.pdf original version (application/pdf)

Related works:
Journal Article: Does monetary policy matter for trade? (2016)
Journal Article: Does monetary policy matter for trade? (2016)
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:pra:mprapa:63502

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().