Heterogeneous Responses to International Monetary Shocks: The Role of Inflation
43 Pages Posted: 21 Mar 2022
In the context of the trilemma hypothesis, this paper documents heterogeneous responses to international monetary shocks, emphasizing an important role of inflation. Periphery countries’ monetary policy autonomy is subject to their inflation. When the center country increases the interest rate, periphery countries with high inflation are more willing to follow. In contrast, those with low inflation are reluctant to do so. We further confirm that periphery countries’ monetary policy autonomy is enhanced by flexible exchange regimes or capital controls, consistent with the trilemma hypothesis.
Keywords: F0, F3, F4
Suggested Citation: Suggested Citation
Li, Jie and Meng, Xiangyuan and Zhang, Liqing and Zhou, Tianhang, Heterogeneous Responses to International Monetary Shocks: The Role of Inflation. Available at SSRN: https://ssrn.com/abstract=4062736 or http://dx.doi.org/10.2139/ssrn.4062736
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