Research Regional Economy Money and Payments Studies National Economy Global Economy Capital Markets Financial Intermediation Research Publications Economic Policy Review Current Issues in Economics and Finance Staff Reports/Research Papers   Research Update Publications and Other Research Economists Program for Resident Scholars Visiting Scholars

Home > Research > Research Publications Research Update New Titles in the Staff Reports Series Number 1, 2008 Return to index page   Staff Reports home page   International   No. 316, February 2008 Macroeconomic Interdependence and the International Role of the Dollar Linda Goldberg and Cédric Tille The U.S. dollar plays a key role in international trade invoicing along two complementary dimensions. First, most U.S. exports and imports are invoiced in dollars; second, trade flows that do not involve the United States are often invoiced in dollars, a fact that has received relatively little attention. Using a simple center-periphery model, Goldberg and Tille 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. The model also shows that although exchange rate movements are not fully efficient, flexible exchange rates are a central component of optimal monetary policy.