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Can trade openness affect the monetary transmission mechanism?
Author(s) -
Zhang Wen
Publication year - 2020
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12453
Subject(s) - openness to experience , economics , offshoring , monetary transmission mechanism , affect (linguistics) , monetary economics , panel data , mechanism (biology) , new keynesian economics , monetary policy , international economics , open economy , exchange rate , inflation targeting , credit channel , econometrics , business , outsourcing , social psychology , psychology , linguistics , philosophy , epistemology , marketing
This paper explores how trade openness influences the monetary transmission mechanism. The theoretical analysis develops an open economy New Keynesian model that features one‐way offshoring from an advanced economy to a less developed one. The model suggests that greater openness to regular trade or to offshoring reduces the effect of monetary policy on domestic economies, although these two influences affect the monetary transmission mechanism via different channels. The empirical section estimates an interacted‐panel VAR model with U.S. industry data and confirms that greater exposure to regular trade or to offshoring significantly reduces the effect of monetary policy.