Trade wedges,inventories, and international business cycles

The large, persistent fluctuations in international trade that cannot be explained in standard models by changes in expenditures and relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings. We find that a two-country model of international business cycles with an inventory management decision can generate trade flows and wedges consistent with the data. Moreover, matching trade flows alters the international transmission of business cycles. Specifically, real net exports become countercyclical and consumption is less correlated across countries than in standard models. We also show that ignoring inventories as a source of trade wedges substantially overstates the role of trade wedges in business cycle fluctuations.     

Exchange Rate Exposure of Exporting and Importing Firms

Although economic theory and conventional wisdom suggest that U.S. multinationals and export-oriented firms are adversely affected by a strengthening dollar and benefit from a depreciating dollar, the research to date provides little evidence of any relationship between FX changes and the stock prices of such firms. The authors propose a "dual-effect" hypothesis that distinguishes between (1) the direct competitive effect of currency induced changes on the effective price to consumers of the firm's products and (2) an indirect effect stemming from the generally positive correlations between currency levels and the strength of the domestic economy. Thus, for example, while a strong dollar hurts exports, it also tends to be associated with a strong domestic market and higher domestic sales. For this reason, the net effect on exporters of a stronger dollar could be close to zero. On the other hand, a weak dollar tends to have a "doubly" negative effect on importers because of higher import prices and the associated weakness of the local economy. For this reason, importers—in contrast to exporters—are likely to have significant exposures to currency fluctuations.
Consistent with these arguments, the authors' econometric analysis reveals a significantly positive currency exposure for importers and insignificant exposure for exporters, based on correlations between stock returns and currency changes. But when the benchmark is non-exporting domestic firms instead of a marketwide index (which contains exporters), a stronger currency is associated with a significantly negative effect on exporters.     

Trade costs, firms and productivity

This paper examines the response of U.S. manufacturing industries and plants to changes in trade costs using a unique new dataset on industry-level tariff and transportation rates. Our results lend support to recent heterogeneous-firm models of international trade that predict a reallocation of economic activity towards high-productivity firms as trade costs fall. We find that industries experiencing relatively large declines in trade costs exhibit relatively strong productivity growth. We also find that low-productivity plants in industries with falling trade costs are more likely to die; that relatively high-productivity non-exporters are more likely to start exporting in response to falling trade costs; and that existing exporters increase their shipments abroad as trade costs fall. Finally, we provide evidence of productivity growth within firms in response to decreases in industry-level trade costs.     

After the tide: Commodity currencies and global trade

The decade prior to the Great Recession saw a boom in global trade and rising transportation costs. High-yielding commodity exporters׳ currencies appreciated, boosting carry trade profits. The Global Recession sharply reversed these trends. We interpret these facts with a two-country general equilibrium model that features specialization in production and endogenous fluctuations in trade costs. Slow adjustment in the shipping sector generates boom–bust cycles in freight rates and, as a consequence, in currency risk premia. We validate these predictions using global shipping data. Our calibrated model explains about 57% of the narrowing of interest rate differentials post-crisis.     

International dimensions of optimal monetary policy

This paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities. An inward-looking policy of domestic price stabilization is not optimal when firms’ markups are exposed to currency fluctuations. Such a policy raises exchange rate volatility, leading foreign exporters to charge higher prices vis-à-vis increased uncertainty in the export market. As higher import prices reduce the purchasing power of domestic consumers, optimal monetary rules trade off a larger domestic output gap against lower consumer prices. Optimal rules in a world Nash equilibrium lead to less exchange rate volatility relative to both inward-looking rules and discretionary policies, even when the latter do not suffer from any inflationary (or deflationary) bias. Gains from international monetary cooperation are related in a non-monotonic way to the degree of exchange rate pass-through.     

Foreign exchange exposure of exporting and importing firms

The existing literature reports insignificant `total' exposure for multinational or exporting firms, where total exposure incorporates both firm-specific and macroeconomic effects. We propose a dual-effect hypothesis to explain this result which seemingly contradicts conventional wisdom. According to our proposed hypothesis, firms are affected by both the domestic economy and foreign markets. These effects are at least partially offsetting for exporters and additive for importers. The resulting predictions of insignificant total exposure for exporters and positive total exposure for importers are borne out in our tests. The literature also reports insignificant `residual' exposure for multinationals or exporting firms, where residual exposure estimates the firm-specific exposure. This result is explained by biases in the residual exposure estimates introduced by the choice of the value-weighted market index as the control portfolio. We propose an equally-weighted portfolio of purely domestic firms as an alternative portfolio to reduce such biases and report significantly negative exposure for exporters and significantly positive exposure for importers, as predicted by theory.     

International Trade and Accounting Policy Choice: Theory and Canadian Evidence

The accounting policy choice literature has identified many factors which have been shown to be useful in explaining cross-sectional variation in the accounting methods used by public companies. One relationship which has been relatively unexplored in this literature is the potential effect of international trade on accounting choice. This study proposes that international trading activities may create incentives for firms to choose income increasing accounting policies. This proposition was tested by examining the depreciation choices of a sample of Canadian firms. Results suggest that importers were more likely to choose income increasing accounting methods than non-importers, while exporting was not found to be related to this accounting choice. These diverging results may be caused by the declining value of the Canadian dollar (relative to the US dollar), which tends to benefit exporters, but is of detriment to importers.     

贸易摩擦、宏观经济波动与经济开放程度的选择

本文构建一个包含关税冲击以及外汇风险溢价的两国开放经济DSGE模型,创新地揭示了关税冲击造成实际汇率波动的“直接效应”与“间接效应”,刻画了关税变动、贸易条件与实际汇率之间的动态关系与作用机制。我们深入分析了不同经济开放程度下贸易摩擦造成的宏观经济波动以及经济福利损失。模拟结果表明,在一定贸易开放程度下,外国加收关税一方面会导致本国贸易条件恶化,引发出口及产出下降;另一方面会导致本国汇率贬值,引发出口及产出增长。关税冲击发生后短期中汇率贬值效应占优,本国产出会出现小幅上升,随后贸易条件恶化效应逐步显现,产出持续下降。福利分析结果表明,本国适度提升贸易开放度,虽然经济福利损失会小幅上升,但福利损失增加幅度小于外国,会在贸易摩擦竞争中形成相对优势;如果本国过度提高贸易开放度,则会导致本国福利损失大幅增加,并且大于外国福利损失增幅,会在贸易摩擦竞争中形成相对劣势。因此,应适度逐步有序地提升贸易开放度。此外,本国适度推进资本账户开放的政策能够改善贸易条件,促进本国经济增长。     

贸易摩擦、宏观经济波动与经济开放程度的选择

本文构建一个包含关税冲击以及外汇风险溢价的两国开放经济DSGE模型,创新地揭示了关税冲击造成实际汇率波动的“直接效应”与“间接效应”,刻画了关税变动、贸易条件与实际汇率之间的动态关系与作用机制。我们深入分析了不同经济开放程度下贸易摩擦造成的宏观经济波动以及经济福利损失。模拟结果表明,在一定贸易开放程度下,外国加收关税一方面会导致本国贸易条件恶化,引发出口及产出下降;另一方面会导致本国汇率贬值,引发出口及产出增长。关税冲击发生后短期中汇率贬值效应占优,本国产出会出现小幅上升,随后贸易条件恶化效应逐步显现,产出持续下降。福利分析结果表明,本国适度提升贸易开放度,虽然经济福利损失会小幅上升,但福利损失增加幅度小于外国,会在贸易摩擦竞争中形成相对优势;如果本国过度提高贸易开放度,则会导致本国福利损失大幅增加,并且大于外国福利损失增幅,会在贸易摩擦竞争中形成相对劣势。因此,应适度逐步有序地提升贸易开放度。此外,本国适度推进资本账户开放的政策能够改善贸易条件,促进本国经济增长。     

Commodity Trade and the Carry Trade: A Tale of Two Countries

Persistent interest rate differentials account for much of the currency carry trade profitability. “Commodity currencies” offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods. In the model, domestic production insulates commodity‐producing countries from global productivity shocks, forcing final‐good producers to absorb them. Commodity‐currency exchange rates and risk premia increase with productivity differentials and trade frictions. These predictions are strongly supported in the data.     

Microeconomic uncertainty,international trade,and aggregate fluctuations

The extent and direction of causation between micro volatility and business cycles are debated. We examine, empirically and theoretically, the source and effects of fluctuations in the dispersion of producer-level sales and production over the business cycle. On the theoretical side, we study the effect of exogenous first- and second-moment shocks to producer-level productivity in a two-country DSGE model with heterogeneous producers and an endogenous dynamic export participation decision. First-moment shocks cause endogenous fluctuations in producer-level dispersion by reallocating production internationally, while second-moment shocks lead to increases in trade relative to GDP in recessions. Empirically, using detailed product-level data in the motor vehicle industry and industry-level data of U.S. manufacturers, we find evidence that international reallocation is indeed important for understanding cross-industry variation in cyclical patterns of measured dispersion.     

Financial friction in an emerging economy

The objective of this study is to evaluate the role of the frictional domestic credit market in an emerging country by using a small-open-economy DSGE model with a banking sector. The calibration results show that the financial friction does not significantly influence the macroeconomic effects of the shocks to the domestic productivity, foreign interest rate and export demand. We also evaluate whether and how the trade and financial openness can influence the effects of the domestic financial shocks that in turn affect the supply of loans in the credit market. We show that greater trade and financial openness can reduce the macroeconomic impacts of the domestic financial distress. Under a more open international capital market, the capital outflow caused by the domestic financial shock does not lead to drastic exchange rate variation. This helps dampen the adverse effects of the financial distress on the economy.     

Trade, production sharing, and the international transmission of business cycles

Countries that are more engaged in production sharing exhibit higher bilateral manufacturing output correlations. We use data on trade flows between US multinationals and their affiliates as well as trade between the United States and Mexican maquiladoras to measure production-sharing trade and its link with the business cycle. We then develop a quantitative model of international business cycles that generates a positive link between the extent of vertically integrated production-sharing trade and internationally synchronized business cycles. A key assumption in the model is a relatively low elasticity of substitution between home and foreign inputs in the production of the vertically integrated good.     

Migration,spillovers, and trade diversion: The impact of internationalization on domestic stock market activity

This paper studies the relation between internationalization (firms cross-listing, issuing depositary receipts, or raising capital in international stock markets) and the trading activity of the remaining firms in domestic markets. Using a panel of 3000 firms from 55 emerging economies during 1989–2000, we find that internationalization is negatively related to the trading activity of domestic firms. We identify two channels. First, the trading of international firms migrates from domestic to international markets and this migration along with the reduction in domestic trading of international firms has negative spillover effects on domestic firm trading activity. Second, there is trade diversion within domestic markets as trading activity shifts out of domestic firms and into international firms.     

Total Factor Productivity,Foreign Direct Investment,and Entry Barriers in the Chinese Automotive Industry

We explore three questions on foreign direct investment (FDI): (1) What are the differences in entry barriers for foreign, public, and private investors? (2) What are the effects of past productivity levels on future foreign direct investment (FDI) decisions? (3) What is the effect of equity structure on future total factor productivity (TFP) levels? The empirical results based on a monopolistic competition model and using a firm-level data set from the Chinese automobile industry suggest that foreign investors face higher entry barriers and react stronger to past TFP levels. FDI is also found to improve future TFP more than other forms of investment. Finally, World Trade Organization (WTO) accession is found to reduce entry barriers for foreign and domestic private investors while increasing entry barriers for public investors.     

Financial Development,Credit, and Business Cycles

How does financial development affect the magnitude of the business cycles fluctuations? We examine this question in a general equilibrium model with heterogeneous agents and endogenous credit constraints based on Kiyotaki (1998). We show that there is a hump‐shaped relationship between the degree of financial frictions and the amplification of unexpected productivity shocks. This nonmonotonic relation is due to the fall in financial frictions having two opposite effects on the response of output. One effect is the reallocation of productive inputs between agent types, which, while active, increases with the fall in financial frictions. The other effect is the change in the demand of inputs, which decreases with the fall in financial frictions. At low levels of financial development, the reallocation effect dominates and a fall in financial frictions increases the amplification of productivity shocks. In contrast, at higher levels of financial development, a fall in financial frictions decreases the shock amplification because the reallocation effect disappears while the effect on the demand of inputs is still present.     

Firm entry,markups and the monetary transmission mechanism

Two business cycle models with endogenous firm and product entry are estimated by matching impulse responses to a monetary policy shock. The ‘competition effect’ implies that entry lowers desired markups and dampens inflation. Under translog preferences, where the substitutability between goods depends on their number, we find evidence of such an effect. That model generates more countercyclical markups than Dixit and Stiglitz (1977) monopolistic competition model, where price stickiness is the only source of markup fluctuations. In contrast, a model with strategic interactions between oligopolistic firms cannot generate an empirically relevant competition effect and is statistically equivalent to the Dixit–Stiglitz model.     

Do capital importing countries pay higher prices for their imports of goods?

We examine the effects that a country's net capital flows have on the (border) prices that a country pays for its imports of goods. Using data from 2000 to 2009 for 11 euro area countries we utilize a pricing-to-market specification to study exporters' pricing behavior to the rest of the countries in the sample, at the industry level, for 900 goods disseminated at the 4-digit Standard International Trade Classification level. This allows us to construct a panel dataset which contains observations across exporters, importers, industries and time. We find a strong positive influence of the importing country's net capital inflows on the border prices of its imports of goods. This result is robust across different specifications of the underlying model, as well to different sample dis-aggregations across types of capital flows, product categories, and exporters.     

Inattentive consumers and international business cycles

This paper presents and studies the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently. Introducing inattentive consumers has important implications. Through a mechanism resembling the limited participation models, exchange rate volatility observed in the data can be addressed for reasonable values of risk aversion. The model generates more persistence in output, consumption and employment which brings us closer to the data. Impulse responses to monetary shocks are hump shaped, consistent with the empirical evidence. Forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate. The decline in the correlation is quantitatively small for our benchmark model. Model generates a substantial amount of consumer forecast errors when producers are attentive and productivity shocks are persistent. This specification results in a large decline of the correlation of real exchange rate and relative consumption due to consumer inattentiveness. When trade elasticity is set to values at the low end of macro estimates or at higher values consistent with sectoral estimates, the correlation is in the negative territory with inattentive consumers.     

服务贸易开放、市场化改革与中国制造业企业生产率

本文首先构建了一个微观企业生产理论框架,从理论上分析了在考虑国内产品替代效应的情况下,贸易开放如何影响下游制造业企业生产率,以及国内市场化程度对贸易开放政策效果的调节效应。其次,我们利用中国工业企业数据库和世界银行的服务贸易限制指数,实证检验了服务贸易开放对中国制造业企业生产率的影响。结果发现,服务贸易开放显著促进了我国制造业出口强度较大的企业的生产率提高,对出口强度较小的企业的促进作用不明显,并抑制了非出口企业生产率的提升;国内市场化水平提高能够增强服务贸易开放对出口企业生产率的促进作用,减弱服务贸易开放对非出口企业造成的负面冲击。此外,我们还发现:(1)市场化主要通过商业存在(FDI)渠道调节服务贸易政策效果;(2)服务贸易开放对国企以及非东部地区中的出口企业生产率的促进效应更为显著,而对非国企以及东部地区的非出口企业的不利冲击更大。在考虑内生性以及使用替换变量等检验后,结果仍然稳健。因此,当前阶段中国服务贸易政策需要同时兼顾出口企业与非出口企业,并协调国内市场化改革,稳中有序开放。