Global Monetary Policy Shocks and Export Prices

This paper examines how global monetary policies impact the export pricing behaviors of Chinese firms using unexpected exogenous monetary shocks and disaggregated customs export data. Our findings show that the unexpected tightening of the US monetary policy will lead to an increase in China’s export prices. This effect is attributed to a borrowing cost channel, which is related to firms’ trade credit and liquidity conditions. Moreover, the impact of US monetary policy shocks on export prices is more profound for firms that face higher borrowing costs, tighter trade credit and liquidity conditions. To further explain our empirical findings, we develop a heterogeneous firm trade model that incorporates financial frictions and external monetary shocks.