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In the Mundell-Fleming framework, standard monetary policy and exchange rate flexibility fully insulate economies from shocks. However, that framework abstracts from many real world imperfections, and countries often resort to unconventional policies to cope with shocks, such as COVID-19. This paper develops a model of optimal monetary policy, capital controls, foreign exchange intervention, and macroprudential policy. It incorporates many shocks and allows countries to differ across the currency of trade invoicing, degree of currency mismatches, tightness of external and domestic borrowing constraints, and depth of foreign exchange markets. The analysis maps these shocks and country characteristics to optimal policies, and yields several principles. If an additional instrument becomes available, it should not necessarily be deployed because it may not be the right tool to address the imperfection at hand. The use of a new instrument can lead to more or less use of others as instruments interact in non-trivial ways.

Banks and Banking --- Exports and Imports --- Finance: General --- Foreign Exchange --- Infrastructure --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Economic Development: Urban, Rural, Regional, and Transportation Analysis --- Housing --- International Financial Markets --- Interest Rates: Determination, Term Structure, and Effects --- International economics --- Macroeconomics --- Currency --- Foreign exchange --- Finance --- Banking --- Capital controls --- Exchange rates --- Currency markets --- Central bank policy rate --- Balance of payments --- National accounts --- Financial markets --- Financial services --- Capital movements --- Saving and investment --- Foreign exchange market --- Interest rates --- United States

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This paper presents the most comprehensive and up-to-date panel data set of invoicing currencies in global trade. It provides data on the shares of exports and imports invoiced in US dollars, euros, and other currencies for more than 100 countries since 1990. The evidence from these data confirms findings from earlier research regarding the globally dominant role of the US dollar in invoicing – despite the comparatively smaller role of the US in global trade – and the overall stability of invoicing currency patterns. The evidence also points to several novel facts. First, both the US dollar and the euro have been increasingly used for invoicing even as the share of global trade accounted for by the US and the euro area has declined. Second, the euro is used as a vehicle currency in parts of Africa, and some European countries have seen significant shifts toward euro invoicing. Third, as suggested by the dominant currency paradigm, countries invoicing more in US dollars (euros) tend to experience greater US dollar (euro) exchange rate pass-through to their import prices; also, their trade volumes are more sensitive to fluctuations in these exchange rates.

Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Databases --- Empirical Studies of Trade --- International Business Cycles --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Trade: General --- Data Collection and Data Estimation Methodology --- Computer Programs: General --- Monetary economics --- Currency --- Foreign exchange --- International economics --- Data capture & analysis --- Currencies --- Exports --- Exchange rates --- Exchange rate pass-through --- Data collection --- Money --- International trade --- Economic and financial statistics --- Economic statistics --- United States