Primary Research Interests
International Trade, Macroeconomics, Trade Costs
International Trade, Macroeconomics, Trade Costs
Working Papers
U.S. Trade Dynamics Following Real Exchange Rate Shocks
Empirical macroeconomic studies of trade balance responses to real exchange rate fluctuations consistently find insignificant results over short time horizons. This literature uses bilateral- and industry-level data; however, findings in the international trade and finance literature suggest the relationship between trade and real exchange rate fluctuations is influenced by microeconomic characteristics of trade unidentifiable in aggregate trade data. I find bilateral trade data hides underlying heterogeneous responses of disaggregate trade over both short and long time horizons. My results suggest that in the short run, both U.S. exports and U.S. imports experience positive shocks following real U.S. dollar depreciation. The frequently found long run improvement in U.S. trade balances following real depreciation is driven by falling imports rather than increases in U.S. export competitiveness. I also demonstrate that the relationship between real exchange rate fluctuations and trade varies across product characteristics, which suggests additional distributional effects of exchange rate policies that, to my knowledge, are previously unexplored.
Transmission of Sovereign Default via International Trade
Co-Author: Dr. Jarrod Hunt (DePauw University)
In this paper, we explore how international trade affects the probability of entering sovereign default. More specifically, we answer the question: is a country more likely to default on its external debt if its trading partners enter sovereign default? Furthermore, we investigate if this relationship systematically varies over trading partner characteristics. To our knowledge, the literature has not looked specifically at external debt crises in relation to trade channels, nor has it explored the implications of the duration of trading partner default on the probability of default. We find that trading partner default is strongly correlated with the probability of a country entering an external debt crisis. This relationship is statistically significant across empirical specifications and robustness checks. Additionally, we find that shorter trading partner default episodes are positively correlated with higher probability of default than longer trading partner external default episodes.
Currency Invoicing and the Dynamics of Trade Flows following an Exchange Rate Shock
This paper explores the short and long run implications of real exchange rate fluctuations on trade and trade balances. I use panel data methods to account for country and product heterogeneity that has obfuscated the current literature. Firms can price their goods in one of three ways: in their domestic currency, their trading partners’ currency, or in a vehicle currency. These invoicing decisions dictate if and how trade flows will respond to real exchange rate shocks in the short run. I show that by not accounting for invoicing currency heterogeneity, the current literature underestimates the responsiveness of international trade flows to exchange rate fluctuations. This paper is the first to show that the short and long run responses of trade flows to exchange rate fluctuations are country-specific and product-specific.
Implications of Foreign Exchange Reform on Japanese Trade
This paper examines the policy implications of the Foreign Exchange Law reform implemented in April 1998 following the Asian Financial Crisis on the responsiveness of Japanese trade flows to real yen exchange rate fluctuations. More specifically, it focuses on establishing whether the responsiveness of commodity trade flows to real exchange rate fluctuations are systematically different before and after the reform. The implications of this policy are relevant to policy makers considering both deregulating and regulating foreign exchange markets. Preliminary evidence suggests that the revision of the Foreign Exchange Law significantly affected the responsiveness of commodity trade flows to fluctuations in the real exchange rate.
Empirical macroeconomic studies of trade balance responses to real exchange rate fluctuations consistently find insignificant results over short time horizons. This literature uses bilateral- and industry-level data; however, findings in the international trade and finance literature suggest the relationship between trade and real exchange rate fluctuations is influenced by microeconomic characteristics of trade unidentifiable in aggregate trade data. I find bilateral trade data hides underlying heterogeneous responses of disaggregate trade over both short and long time horizons. My results suggest that in the short run, both U.S. exports and U.S. imports experience positive shocks following real U.S. dollar depreciation. The frequently found long run improvement in U.S. trade balances following real depreciation is driven by falling imports rather than increases in U.S. export competitiveness. I also demonstrate that the relationship between real exchange rate fluctuations and trade varies across product characteristics, which suggests additional distributional effects of exchange rate policies that, to my knowledge, are previously unexplored.
Transmission of Sovereign Default via International Trade
Co-Author: Dr. Jarrod Hunt (DePauw University)
In this paper, we explore how international trade affects the probability of entering sovereign default. More specifically, we answer the question: is a country more likely to default on its external debt if its trading partners enter sovereign default? Furthermore, we investigate if this relationship systematically varies over trading partner characteristics. To our knowledge, the literature has not looked specifically at external debt crises in relation to trade channels, nor has it explored the implications of the duration of trading partner default on the probability of default. We find that trading partner default is strongly correlated with the probability of a country entering an external debt crisis. This relationship is statistically significant across empirical specifications and robustness checks. Additionally, we find that shorter trading partner default episodes are positively correlated with higher probability of default than longer trading partner external default episodes.
Currency Invoicing and the Dynamics of Trade Flows following an Exchange Rate Shock
This paper explores the short and long run implications of real exchange rate fluctuations on trade and trade balances. I use panel data methods to account for country and product heterogeneity that has obfuscated the current literature. Firms can price their goods in one of three ways: in their domestic currency, their trading partners’ currency, or in a vehicle currency. These invoicing decisions dictate if and how trade flows will respond to real exchange rate shocks in the short run. I show that by not accounting for invoicing currency heterogeneity, the current literature underestimates the responsiveness of international trade flows to exchange rate fluctuations. This paper is the first to show that the short and long run responses of trade flows to exchange rate fluctuations are country-specific and product-specific.
Implications of Foreign Exchange Reform on Japanese Trade
This paper examines the policy implications of the Foreign Exchange Law reform implemented in April 1998 following the Asian Financial Crisis on the responsiveness of Japanese trade flows to real yen exchange rate fluctuations. More specifically, it focuses on establishing whether the responsiveness of commodity trade flows to real exchange rate fluctuations are systematically different before and after the reform. The implications of this policy are relevant to policy makers considering both deregulating and regulating foreign exchange markets. Preliminary evidence suggests that the revision of the Foreign Exchange Law significantly affected the responsiveness of commodity trade flows to fluctuations in the real exchange rate.
Work in Progress
Exchange Rate Volatility: Does Measurement Matter?
Empirical work in international economics addressing the implications of exchange rate volatility on international trade provides inconclusive results regarding the role of volatility. However, volatility is inconsistently measured across the literature and may contribute to these inconclusive results. In this paper, I explore properties of six distinct measures of the exchange rate commonly used in the literature ranging from volatility as a 4-month rolling window standard deviation to predicting volatility using GARCH (conditional volatility model). Preliminary results suggest that measurement may indeed contribute to the inconclusive results of the literature. Additional work is needed regarding the implications of data frequency (e.g. daily, weekly, monthly) and high vs. low volatility currencies.