Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197890 
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-37
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This paper studies the effects of monetary policy shocks on firms' participation in exporting. We develop a two-country dynamic stochastic general equilibrium model in which heterogeneous firms make forward-looking decisions on whether to participate in the export market and prices are staggered across firms and time. We show that while lower interest rates and a currency depreciation associated with an expansionary monetary policy help to increase the value of exporting, the inflationary effects of the policy stimulus weaken the competitiveness of some firms, resulting in a contraction in firms' export participation. In contrast, positive productivity shocks lead to a currency depreciation and an expansion in export participation at the same time. We show that, overall, the extensive margin is more sensitive to firms' price competitiveness with other firms in the export market than to exchange rate movements or interest rates.
Subjects: 
Business fluctuations and cycles
Economic models
Firm dynamics
International topics
Monetary policy
JEL: 
F44
E52
F12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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