Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/156121 
Year of Publication: 
2016
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP05-2016
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
This paper shows that a regional bias resulting from trade integration alters the transmission of a country's monetary policy by shifting the burden of the exchange rate adjustment towards the less integrated trading partners. I first develop a simple model which illustrates how a concentration of trade flows among regional trading partners affects the sensitivity of the trade balance to the terms-of-trade. In particular, the trade balance becomes less sensitive to the terms-of-trade vis-a-vis regional partners and more sensitive to the terms-of-trade vis-a-vis the other country. I then test the implication of the model using a panel of 133 countries between 1985 - 2010 that includes information on Regional Trade Agreements (RTA). I find that movements in the terms-of-trade vis-a-vis non-RTA members affect a country´s trade balance, while movements vis-a-vis RTA partners do not.
Subjects: 
trade balance
regional trade agreements
competitive depreciation
economic integration
terms-of-trade
JEL: 
F10
F13
F14
F15
F40
F41
F45
Document Type: 
Working Paper

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