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International Transmission through Relative Prices

  • Nan Li

    (Ohio State University)

  • Keyu Jin

    (London School of Economics)

We examine how U.S. monetary and fiscal policy shocks affect emerging markets’ aggregate economy. We find that emerging markets’ reaction to U.S. policy shocks differ widely from those of industrialized countries. Expansionary policies tend to depreciate the currencies of emerging markets, while appreciating the currencies of European economies. Moreover, net exports rise significantly in emerging markets, suggesting strong spillovers from the demand channel. All of these results are opposite of the predictions of a standard model. We examine whether incorporating a more realistic structure of trade can help understand the differential impact of policy spillovers to industrialized and emerging economies alike.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1185.

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Date of creation: 2012
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Handle: RePEc:red:sed012:1185
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