Monetary Policy Spillovers Through Invoicing Currencies
67 Pages Posted: 1 Mar 2018 Last revised: 2 Apr 2019
Date Written: March 2019
This paper explores the role of trade invoicing currencies in the international transmission of monetary policy. Using high-frequency measures of FRB and ECB monetary policy shocks, I show countries’ shares of dollar and euro-invoiced trade explain cross-sectional variation in their asset pricing responses to FRB and ECB monetary policy. Moreover, the magnitude of FRB and ECB spillovers are similar after controlling for dollar and euro-invoicing. I rationalize these findings within a New Keynesian framework. The model shows countries in which larger share of exporters invoice in a foreign currency are less effective at implementing domestic monetary policy.
Keywords: Monetary Policy, Currency Invoicing, Dominant Currency, U.S. Dollar
JEL Classification: F31, F42, G12, G15
Suggested Citation: Suggested Citation