NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Macroeconomic Interdependence and the International Role of the Dollar

Linda S. Goldberg, Cédric Tille

NBER Working Paper No. 13820
Issued in February 2008
NBER Program(s):   IFM   ITI   ME

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.

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Document Object Identifier (DOI): 10.3386/w13820

Published: Goldberg, Linda & Tille, Cédric, 2009. "Macroeconomic interdependence and the international role of the dollar," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 990-1003, October.

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