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Tipping the scale? The workings of monetary policy through trade
Author(s) -
Adler Gustavo,
Osorio Buitron Carolina
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.12469
Subject(s) - economics , monetary transmission mechanism , monetary policy , monetary economics , sign (mathematics) , autoregressive model , balance of trade , financial crisis , international economics , balance (ability) , identification (biology) , macroeconomics , credit channel , econometrics , inflation targeting , botany , mathematical analysis , medicine , mathematics , biology , physical medicine and rehabilitation
The monetary policy entails demand‐augmenting and diverting effects, and its impact on the trade balance—and on other countries—depends on the magnitude of these opposing effects. Using U.S. data and a sign‐restricted structural vector autoregressive identification, we investigate the importance of these effects. Overall, the results indicate that a monetary loosening (tightening) leads to a strengthening (weakening) of the overall trade balance, indicating that demand diversion dominates. The paper also explores changes in the effects following the global financial crisis, reflecting the impaired monetary transmission mechanism.