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The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy

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  • Stephen S. Poloz

Abstract

In this paper we explore the nexus between cross-border trade integration and monetary policy. We first review the evidence that trade liberalization has increased the degree of integration in North America and conclude that, while robust structural inferences remain elusive, there is sufficient supporting evidence for central banks to treat the issue seriously. The paper then discusses several channels by which increased integration might affect macroeconomic models. We introduce modifications to the Bank of Canada’s main policy model, ToTEM, to capture some of the impacts of integration suggested in the literature and generate stochastic simulations to compare versions of the model with low and high integration. The main conclusion is that increased integration may make it more challenging for central banks to control inflation, in the sense that doing so will require more variability in interest rates, exchange rates and the output gap.

Suggested Citation

  • Stephen S. Poloz, 2016. "The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy," Discussion Papers 16-20, Bank of Canada.
  • Handle: RePEc:bca:bocadp:16-20
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    References listed on IDEAS

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    Cited by:

    1. Raphael A. Auer & Andrei A. Levchenko & Philip Sauré, 2019. "International Inflation Spillovers through Input Linkages," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 507-521, July.
    2. Raphael A. Auer & Claudio Borio & Andrew Filardo, 2017. "The Globalisation of Inflation: The Growing Importance of Global Value Chains," CESifo Working Paper Series 6387, CESifo.
    3. Jeremy Kronick & Steve Ambler, 2019. "Do demographics affect monetary policy transmission in Canada?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 787-811, April.
    4. Erzsébet Éva Nagy & Veronika Tengely, 2018. "The external and domestic drivers of inflation: the case study of Hungary," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and deglobalisation, volume 100, pages 149-172, Bank for International Settlements.
    5. Jašová, Martina & Moessner, Richhild & Takáts, Előd, 2020. "Domestic and global output gaps as inflation drivers: What does the Phillips curve tell?," Economic Modelling, Elsevier, vol. 87(C), pages 238-253.

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    More about this item

    Keywords

    Economic models; Monetary Policy; Trade Integration;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F1 - International Economics - - Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F6 - International Economics - - Economic Impacts of Globalization

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