Heterogeneous Responses to International Monetary Shocks: The Role of Inflation

43 Pages Posted: 21 Mar 2022

See all articles by Jie Li

Jie Li

Central University of Finance and Economics (CUFE)

Xiangyuan Meng

Central University of Finance and Economics

Liqing Zhang

Central University of Finance and Economics

Tianhang Zhou

Central University of Finance and Economics

Abstract

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

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

Jie Li (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Xiangyuan Meng

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Liqing Zhang

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Tianhang Zhou

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

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