Monetary Policy Spillovers Through Invoicing Currencies

67 Pages Posted: 1 Mar 2018 Last revised: 2 Apr 2019

See all articles by Tony Zhang

Tony Zhang

Boston University - Questrom School of Business

Date Written: March 2019

Abstract

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

Zhang, Tony, Monetary Policy Spillovers Through Invoicing Currencies (March 2019). Available at SSRN: https://ssrn.com/abstract=3125145 or http://dx.doi.org/10.2139/ssrn.3125145

Tony Zhang (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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