Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports
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-á-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; currency wars that have been launched have also been lost. UMP is also associated with a comparable drop in imports and exchange rates, suggesting that countries engage in UMP when they are experiencing adverse macroeconomic shocks concurrent with those that eviscerate international trade.
* B.T. Rocca Jr. Professor, Haas School of Business at the University of California, Berkeley, NBER research associate, CEPR research fellow, and ABFER senior fellow. For hospitality during the course of this research, I thank the National University of Singapore. For discussions on related earlier work, I thank Reuven Glick. For comments, I thank Ross Levine, Mark Spiegel, Ken West and two anonymous referees. Current and earlier (longer) versions of this paper, the main STATA data sets used in the paper, and key output are all available at http://faculty.haas.berkeley.edu/arose. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.