Transmission of U.S. Monetary Policy to Commodity Exporters and Importers

65 Pages Posted: 20 Dec 2018

See all articles by Myunghyun Kim

Myunghyun Kim

The Bank of Korea; The Bank of Korea-Economic Research Institute

Date Written: December 18, 2018

Abstract

This paper studies international transmission of U.S. monetary policy shocks to commodity exporters and importers. After first showing empirically that the shocks have stronger effects on commodity exporters than on importers, I then augment a standard three-country model to include commodities. Consistent with the empirical evidence, the model indicates that an expansionary monetary policy shock to the U.S. increases the aggregate output of commodity exporters by more than that of importers. This is because the increased U.S. aggregate demand triggered by the shock leads to greater U.S. demand for commodities and higher real commodity prices, and thus the exports of commodity exporters increase relative to those of commodity importers. Furthermore, I show that if commodity exporters’ currencies are pegged to the U.S. dollar, then the U.S. monetary policy shocks have stronger spillovers to commodity exporters and importers. In the event that the U.S. becomes a net energy exporter, the shocks will have weaker effects on commodity exporters and stronger impacts on importers.

Keywords: Monetary policy shocks, International transmission, Commodity exporters, Commodity importers, VAR with external instruments

JEL Classification: E52, F42, Q43

Suggested Citation

Kim, Myunghyun, Transmission of U.S. Monetary Policy to Commodity Exporters and Importers (December 18, 2018). Bank of Korea WP 2018-43. Available at SSRN: https://ssrn.com/abstract=3304245 or http://dx.doi.org/10.2139/ssrn.3304245

Myunghyun Kim (Contact Author)

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

The Bank of Korea-Economic Research Institute ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

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