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Tipping the scale? The workings of monetary policy through trade

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  • Gustavo Adler
  • Carolina Osorio Buitron

Abstract

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.

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  • Gustavo Adler & Carolina Osorio Buitron, 2020. "Tipping the scale? The workings of monetary policy through trade," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 744-759, August.
    • Handle: RePEc:bla:reviec:v:28:y:2020:i:3:p:744-759
    DOI: 10.1111/roie.12469
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    Cited by:

    1. Gustavo Adler & Carolina Osorio Buitron, 2019. "Policy mix and the U.S. trade balance," International Finance, Wiley Blackwell, vol. 22(2), pages 138-154, August.
    2. Thanh, Su Dinh & Canh, Nguyen Phuc & Doytch, Nadia, 2020. "Asymmetric effects of U.S. monetary policy on the U.S. bilateral trade deficit with China: A Markov switching ARDL model approach," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    3. Vladislav Abramov, 2020. "Spillover Effects of Russian Monetary Policy Shocks on the Eurasian Economic Union," Bank of Russia Working Paper Series wps60, Bank of Russia.
    4. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2021. "Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets," DEM Working Papers 2021/09, Department of Economics and Management.

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