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Monetary Policy and Trade Globalization

Author

Listed:
  • Dudley Cooke

    (Trinity College Dublin ,Hong Kong Institute for Monetary Research)

Abstract

I develop a two country general equilibrium model with heterogeneous price-setting firms to understand how shocks to monetary policy and aggregate labor productivity impact trade integration, which I capture through the (inverse) average productivity of exporting firms. A contractionary domestic monetary policy shock raises the average productivity of domestic exporting firms but lowers the average productivity of foreign exporting firms. The magnitude of these changes is greater when governments target domestic price inflation as opposed to consumer price inflation. A positive shock to domestic labor productivity generates positive - although quantitatively small - changes in the average productivity of all exporting firms when consumer price inflation is targeted. When domestic price inflation is targeted, the same shock causes a fall in the average productivity of domestic exporting firms, and a far larger rise in the productivity of foreign exporting firms.

Suggested Citation

  • Dudley Cooke, 2010. "Monetary Policy and Trade Globalization," Working Papers 042010, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:042010
    as

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    References listed on IDEAS

    as
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Monetary Policy and Trade Globalization
      by Martin Berka in NEP-OPM blog on 2010-05-10 05:29:53

    More about this item

    Keywords

    Monetary Policy; Heterogeneous Firms; Trade Globalization;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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