Journal of International Economics最新文献

This paper analyses the exchange rate pass-through in small, open, commodity-exporting economies, taking Canada as a case study. I estimate it as being conditional on commodity shocks and compare the results with those of a standard approach, showing that the pass-through sign changes drastically across frameworks for consumer prices. My approach leads to a positive pass-through, thus implying a positive co-movement between exchange rate appreciation and consumer price inflation, conditional on the shocks. Conversely, standard models find a negative pass-through. I explain my findings by using the commodity-exporter characteristic of Canada and the nature of the shocks, which raise the demand for commodities. This, in turn, causes a currency appreciation and has inflationary effects domestically through higher commodity prices.

The 2011 Arab Spring marked the opening of the Central Mediterranean Route for irregular border crossings between Libya and Italy, which produced heterogeneous reductions of bilateral smuggling distances between country pairs in the Mediterranean region. We exploit this source of spatial and temporal variation in bilateral distance along land and sea routes to estimate the elasticity of irregular migration intentions for African and Near East countries. We estimate an elasticity of migration intentions to smuggling distances exceeding −3, mainly driven by countries with weak rule of law and high internet penetration. Our findings are consistent across irregular migration measures both at the aggregate and individual levels. We show that irregular migration elasticity is higher for youth, relatively skilled individuals and those with an informative advantage (having a social network abroad or a mobile phone).

We derive a small open economy (SOE) as the limit of an economy as the number or size of its trading partners goes to infinity and trade costs also go to infinity. We obtain this limit in the Armington, Eaton–Kortum, Krugman, and Melitz models. In all cases, the trade of the SOE with the foreign countries approaches a finite limit, and the domestic expenditure share for the SOE approaches a limit that is not zero or unity. The foreign countries can be either infinitely many SOEs, or alternatively, one or many large countries with domestic expenditure shares that approach unity. We illustrate the usefulness of this framework by obtaining a formula for the optimal tariff in the SOE – depending on the elasticity of domestic wages with respect to the tariff – that is consistent with all models.

We evaluate the behavior of the UIP relationship around monetary policy and global uncertainty shocks using event studies. We find that the covariance between exchange rate movements and changes in long-term yield differentials is conditional on the nature of shocks. A model of partial arbitrage between domestic and US bond markets predicts that tighter US monetary policy appreciates the dollar while increasing US yields relative to domestic bonds, a response that is consistent with UIP forces, while global uncertainty shocks appreciate the dollar while raising domestic yields relative to US bonds, exacerbating the widely documented UIP violation. The empirical analysis supports these mechanisms, specially for developed economies. For emerging economies, both relationships are weaker, consistent with more pervasive currency stabilization policies that mute the FX response at the expense of higher volatility in longer yields. Our results suggest a more nuanced interpretation of the unconditional failure of the UIP.

We document a cross-border peer effect in corporate investment across two key economies, China and the US. Results show that investment by individual Chinese firms lags US peers without feedback in the other direction. This association is stronger for Chinese firms in manufacturing, with innovative US peers, once China joined WTO, or targeted by anti-dumping investigations or measures as reported to the WTO. These findings are robust to diagnostic tests and alternative specifications. Furthermore, Chinese firms respond to domestic competition by learning from US peers. Our findings illustrate how peer competition induced by foreign trade and international institutions affects corporate decision-making in China’s rapidly-growing economy.

We show the distinction between permanent and temporary monetary policy shocks is helpful to understand the impacts of monetary policy on exchange rates in the short as well as over the long run. Drawing on monthly data for several advanced economies from 1971 to 2019 and resorting to a simple structural vector error correction (SVEC) model, we find that a shock leading to a temporary increase in U.S. nominal interest rates leads to a temporary appreciation of the USD against the other currencies. In turn, a monetary policy shock leading to a permanent rise in nominal interest rates – e.g., one associated with a normalisation of monetary policy after a long period at the zero lower bound – results in a depreciation of the USD, in the short as well as over the long run that may contribute to higher (not lower) inflation also in the short run.

Rules of origin offer preferred market access for final goods whose inputs originate mostly within a free trade agreement. Governments often champion such rules for boosting investment. We use a property-rights framework to study when this motivation is justifiable. The rule does not bind for all supply chains, as some (very-high-productivity) suppliers comply in an unconstrained way and some (very-low-productivity) suppliers do not comply. For those suppliers it affects, the rule both increases investments and induces excessive sourcing within the trading bloc. From a social standpoint, the best rule binds for relatively high-productivity suppliers, because the marginal net welfare gain from tightening it increases with productivity. Therefore, when industry productivity is high, a $strict$ rule is socially desirable. In contrast, a lenient rule binds for relatively low-productivity suppliers and is more likely to be harmful. For output tariffs that are not too high, a sufficiently strict rule ensures welfare gains.

This paper studies how distributional and electoral concerns shape sovereign default incentives within a quantitative model of sovereign debt with heterogeneous agents and non-linear income taxation. The small open economy is characterized by a two-party system in which the left-wing party has a larger preference for redistribution than the right-wing party. Political turnover is the endogenous outcome of the electoral process. Fiscal policy faces a tradeoff: On the one hand, the government has incentives to finance its spending via external debt to avoid distortionary income taxation. On the other hand, the accumulation of external debt raises the cost of borrowing. Quantitative findings suggest that the left-wing party implements a more progressive income tax, is more prone to default, and has a lower electoral support than the right-wing party due to worse borrowing conditions and the distortionary effects of income taxation. In equilibrium, electoral uncertainty raises sovereign default risk.