The International Transmission of U.S. Monetary Policy: New Evidence from Trade Data

HKIMR Working Paper No.08/2015

29 Pages Posted: 11 Apr 2015

See all articles by Shu Lin

Shu Lin

Department of Economics, The Chinese University of Hong Kong

Haichun Ye

Shanghai University of Finance and Economics - School of Economics

Date Written: April 10, 2015

Abstract

We make the first attempt in the literature to empirically examine the spillover effects of U.S. monetary policy on trade in other countries. In a large sector-level bilateral trade dataset of 137 countries for the years 1970-2000, we find strong and robust evidence supporting an international credit channel of U.S. monetary policy transmission. We show that: 1) financially more constrained sectors have a more negative exposure of their trade to a tight U.S. monetary policy; 2) this international credit channel works mainly during significant U.S. monetary tightening periods (e.g., a large increase in interest rates); 3) the negative impact of a tight U.S. policy is significantly stronger in financially less developed countries or countries with no monetary autonomy.

Keywords: International Transmission of U.S. Monetary Policy, Trade, Credit Constraints, Credit Channel

JEL Classification: E52, E44, F14, F33, F42

Suggested Citation

Lin, Shu and Ye, Haichun, The International Transmission of U.S. Monetary Policy: New Evidence from Trade Data (April 10, 2015). HKIMR Working Paper No.08/2015, Available at SSRN: https://ssrn.com/abstract=2592826 or http://dx.doi.org/10.2139/ssrn.2592826

Shu Lin (Contact Author)

Department of Economics, The Chinese University of Hong Kong ( email )

Department of Economics
The Chinese University of Hong Kong
Shatin, N.T., 200433
Hong Kong

Haichun Ye

Shanghai University of Finance and Economics - School of Economics ( email )

111 Wuchuan Road
Shanghai, 200434
China

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