We develop a novel framework to study the interaction between monetary policy and trade. Our New Keynesian open economy … model incorporates international production networks, sectoral heterogeneity in price rigidities, and trade distortions. We … decompose the general equilibrium response to trade shocks into distinct channels that account for demand shifts, policy effects …

We use the new dataset of trade flows across 269 European regions in 24 countries constructed in Santamaría et al …. (2020) to systematically explore for the first time trade patterns within and across country borders. We focus on the … differences between home trade, country trade and foreign trade. We document the following facts: (i) European regional trade has …