Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports
31 Pages Posted: 16 Jul 2018 Last revised: 24 Apr 2022
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Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports
Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports
Date Written: July 2018
Abstract
I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-á-vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus, there is no evidence that countries have gained export markets through unconventional monetary policy; currency wars that have been launched have also been lost. UMP is also associated with a comparable drop in imports and exchange rates, suggesting that countries engage in UMP when they are experiencing adverse macroeconomic shocks concurrent with those that eviscerate international trade.
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