Currency Wars? Unconventional Monetary Policy Does

Transcript:Currency Wars? Unconventional Monetary Policy Does:
Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports Andrew K. Rose Berkeley-Haas, ABFER, CEPR,NBER Motivation: What are the Export Effects of Unconventional Monetary Policy (UMP)? “We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness…” - Brazilian Finance Minister Guido Mantega, Mon Sep 27, 2010, reported by the Financial Times and Reuters “A ‘currency war’ … occurs when a country eases monetary policy specifically to depreciate its currency, with the ultimate objective of cheapening its exports and gaining unfair competitive advantage in international trade…” - Ben Bernanke (2016, p2) 2 Rose: Export Effects of Currency Wars Strategy Use plain-vanilla gravity model of exports Requires neither UMP exogeneity nor instrumental variables Straightforward methodology, data Three assumptions Identify “currency wars” with unconventional monetary policy UMP: Quantitative easing, negative nominal interest rates, … Currency wars are bilateral events between those engaging in UMP and those not Estimate effect of UMP by aggressors on potential victims Focus on export effects of UMP 3 Rose: Export Effects of Currency Wars Preview of Findings Countries that engage in UMP experience drop in exports vis-à-vis countries that did not engage in UMP, ceteris paribus Quantitative easing associated with drop in exports ≈10% Highly statistically significant Negative nominal interest rates have similar effect No effect from conditional forward guidance policies Any currency wars have been lost by aggressors! 4 Rose: Export Effects of Currency Wars A Naïve Look 5 Rose: Export Effects of Currency Wars But that’s … Simplistic No obvious pattern: Both exports and imports continue to drop following QE1, trends unaffected by QE2, stagnation unaffected by QE3 But … Only US considered Multilateral blurs American exports to importers engaged in their own UMP (EMU, Japan, UK, Switzerland, …) with exports to importers not engaged in UMP No controls at all 6 Rose: Export Effects of Currency Wars Standard Gravity Model Follow Head-Mayer (2014) survey, use Least Squares with Time-Varying Country Dummy Variables: ln(Xijt) = UMPijt + 1CUijt + 2FTAijt + {λit} + {ψjt} + {φij} + ijt  is coefficient of interest UMPijt is 1 if i engages in UMP at t and j does not, 0 ow 7 Rose: Export Effects of Currency Wars Estimation LS with many fixed effects on positive export flow observations 11,773 exporter-quarter 12,997 importer-quarter 26,096 exporter-importer FE hold constant any overall effect UMP (or anything else!)