Macroeconomic Interdependence and the International Role of the Dollar / Linda S. Goldberg, Cédric Tille.

Format:

Book

Author/Creator:

Goldberg, Linda S.

Contributor:

National Bureau of Economic Research.

Tille, Cédric.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13820.

NBER working paper series no. w13820

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

The U.S. dollar holds a dominant place in the invoicing of international trade, along two complementary dimensions. First, most U.S. exports and imports invoiced in dollars. Second, trade flows that do not involve the United States are also substantially invoiced in dollars, an aspect that has received relatively little attention. Using a simple center-periphery model, we show that the second dimension magnifies the exposure of periphery countries to the center's monetary policy, even when direct trade flows between the center and the periphery are limited. When intra-periphery trade volumes are sensitive to the center's monetary policy, the model predicts substantial welfare gains from coordinated monetary policy. Our model also shows that even though exchange rate movements are not fully efficient, flexible exchange rates are a central component of optimal policy.

Notes:

Print version record

February 2008.