Stéphane Auray () (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE) Aurélien Eyquem (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France) Jean-Christophe Poutineau (CREM, UMR 6211, Université de Rennes 1 and Ecole Normale Supérieure de Cachan, France)
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This paper investigates the impact of alternative monetary policy regimes on the creation of new varieties in open economies. Using a dynamic two-country model incorporating nominal rigidities, international trade and firm entries we compare an independent monetary policy regime to a monetary union regime. We find that a common monetary policy defined by a nominal interest rate rule reactive to inflation increases extensive margin of trade volatility. Simulations based on business cycle frequencies indicate that on average this increase reaches 3%. Although monetary policy interdependence is found to be a key ingredient in generating this effect, we stress that those parameters affecting international trade structures are crucial in determining its magnitude.
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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number
08-09.
Find related papers by JEL classification: E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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