IMF Working Papers

Missing Imports in the Euro Area: Domestic Monetary Policy, Cross-Border Synchronization, and Demand Composition

By Francesca Caselli, Allan Dizioli

July 4, 2025

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Format: Chicago

Francesca Caselli, and Allan Dizioli. "Missing Imports in the Euro Area: Domestic Monetary Policy, Cross-Border Synchronization, and Demand Composition", IMF Working Papers 2025, 140 (2025), accessed July 6, 2025, https://doi.org/10.5089/9798229015790.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper sheds new light on an overlooked channel of monetary transmission: the relationship between central bank interest rate policy and the economy’s trade position. It examines the impact of monetary policy on import dynamics through its effect on domestic demand composition. In 2023, the euro area faced a significant contraction in imports, despite resilient GDP growth, challenging traditional import elasticity models. While an import intensity-adjusted demand framework explains the Great Financial Crisis (GFC) trade-GDP disconnect, it fails to account for the euro area’s 2023 import shortfall, indicating that additional factors are at play. Incorporating lending rates into the regression significantly improves the model’s explanatory power for this recent period, underscoring the role of monetary policy in the recent decline in imports. Using local projection methods with high-frequency monetary policy shocks, we confirm that monetary tightening negatively impacts imports by suppressing demand components with higher import intensity. Furthermore, this effect is amplified when accounting for the cross-border synchronization of monetary policy.

Subject: Consumption, Exports, Imports, International trade, Monetary policy, Monetary tightening, National accounts

Keywords: Consumption, Demand Composition, Euro Area, Exports, Global, Imports, International trade, Monetary policy, Monetary policy synchronization, Monetary tightening

Publication Details

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