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Journal Article
Mexico's integration into NAFTA markets: a view from sectoral real exchange rates
The authors use a threshold autoregressive model to confirm the presence of nonlinearities in sectoral real exchange rate dynamics across Mexico, Canada, and the United States for the periods before and after the North American Free Trade Agreement (NAFTA). Although trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries, the authors find, by using estimated threshold bands, that Mexico still faces higher transaction costs than its developed counterparts. Other determinants of transaction costs are distance and nominal exchange ...
Journal Article
Why \\"fixing\\" China's currency is no quick fix
Even if China does revalue its currency, jobs aren?t likely to come flooding back to the United States. Much of what China exports to the U.S. originates in other Asian countries.
Journal Article
Capital controls by any other name
The embrace of ad hoc capital controls to address temporary market inefficiencies on a case-by-case basis, while pragmatic, perpetuates the view that each capital crisis is an isolated example of failed financial institutions.
Journal Article
When oil prices jump, is speculation to blame?
Whenever the price at the pump climbs week after week, people start pointing fingers at investment banks, hedge funds and other speculators. This article quantifies the role that speculation played in the rise of oil prices during the past decade.
Working Paper
Mexico's integration into NAFTA markets: a view from sectoral real exchange rates
Using a self-exciting threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods. Measuring transaction costs using the estimated threshold bands, we find evidence that Mexico still faces higher transaction costs than their developed counterparts. Trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries. Other determinants of transaction costs are distance and nominal exchange rate volatility. Our ...
Working Paper
Pricing-to-market and business cycle synchronization
There is substantial evidence that countries or regions with stronger trade linkages tend to have business cycles which are more synchronized. However, the standard international business cycle framework cannot replicate this finding. In this paper we study a multiple- country model of international trade with imperfect competition and variable markups and embed it into a real business cycle framework by including aggregate technology shocks and allowing for variable labor supply. The model is successful at replicating the empirical relation between trade and business cycle synchronization. ...
Working Paper
Export market diversification and productivity improvements: theory and evidence from Argentinean firms
This paper examines the relationship between trade and investment in technology adoption when firms face demand uncertainty. Our model predicts that, for a given overall market size, exporting to several countries reduces firms' demand uncertainty and, hence, raises incentives to invest in productivity improvements. The effects of diversification are heterogeneous across firms: An additional foreign market matters more for firms exporting to fewer destinations. We test the proposed theory using a large sample of Argentinean manufacturing exporters. The predictions of the model find strong ...
Working Paper
Sources of exchange rate fluctuations: are they real or nominal?
I analyze the role of real and monetary shocks on the exchange rate behavior using a structural vector autoregressive model of the US vis--vis the rest of the world. The shocks are identified using sign restrictions on the responses of the variables to orthogonal disturbances. These restrictions are derived from the predictions of a two-country DSGE model. I find that monetary shocks are unimportant in explaining exchange rate fluctuations. By contrast, demand shocks explain between 23% and 38% of exchange rate variance at 4-quarter and 20-quarter horizons, respectively. The contribution of ...
Working Paper
Speculation in the oil market
The run-up in oil prices after 2004 coincided with a growing flow of investment to commodity markets and an increased price comovement between different commodities. We analyze whether speculation in the oil market played a key role in driving this salient empirical pattern. We identify oil shocks from a large dataset using a factor-augmented autoregressive (FAVAR) model. We analyze the role of speculation in comparison to supply and demand forces as drivers of oil prices. The main results are as follows: (i) While global demand shocks account for the largest share of oil price fluctuations, ...
Working Paper
Asset prices, exchange rates and the current account
This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. It employs a Bayesian structural VAR model that requires imposing only a minimum of economically meaningful sign restrictions. We find that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 32% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been much less relevant, explaining less than 7% and ...