DP11748 Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports

Author(s): Andrew K Rose
Publication Date: January 2017
Keyword(s): bilateral, data, easing, empirical, Gravity, interest, negative, nominal, quantitative, Trade
JEL(s): E58, F14
Programme Areas: International Trade and Regional Economics, International Macroeconomics and Finance
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11748

I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-ра-vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus there is no evidence that countries have gained export markets through unconventional monetary policy; any currency wars launched have been lost.