Institutional Affiliation: International Monetary Fund
|Global Trade and the Dollar|
with Gita Gopinath, Mikkel Plagborg-Møller: w23988
We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1% U.S. dollar appreciation against all other currencies in the world predicts a 0.6--0.8% de...
Published: Emine Boz & Gita Gopinath & Mikkel Plagborg-Møller, 2017. "Global Trade and the Dollar," IMF Working Papers, vol 17(239).
|Dominant Currency Paradigm|
with Gita Gopinath, Camila Casas, Federico J. Díez, Pierre-Olivier Gourinchas, Mikkel Plagborg-Møller: w22943
Most trade is invoiced in very few currencies. Yet, standard models assume prices are set in either the producer’s or destination’s currency. We present instead a ‘dominant currency paradigm’ with three key features: pricing in a dominant currency, pricing complementarities, and imported input use in production. We test this paradigm using both a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs that covers 91% of world trade, and very granular firm-product-country data for Colombian exports and imports. In strong support of the paradigm we find that: (1) Non-commodities terms of trade are essentially uncorrelated with exchange rates. (2) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and ...
Published: Gita Gopinath & Emine Boz & Camila Casas & Federico J. Díez & Pierre-Olivier Gourinchas & Mikkel Plagborg-Møller, 2020. "Dominant Currency Paradigm," American Economic Review, vol 110(3), pages 677-719. citation courtesy of
|Macro-Prudential Policy in a Fisherian model of Financial Innovation|
with Javier Bianchi, Enrique G. Mendoza: w18036
The interaction between credit frictions, financial innovation, and a switch from optimistic to pessimistic beliefs played a central role in the 2008 financial crisis. This paper develops a quantitative general equilibrium framework in which this interaction drives the financial amplification mechanism to study the effects of macro-prudential policy. Financial innovation enhances the ability of agents to collateralize assets into debt, but the riskiness of this new regime can only be learned over time. Beliefs about transition probabilities across states with high and low ability to borrow change as agents learn from observed realizations of financial conditions. At the same time, the collateral constraint introduces a pecuniary externality, because agents fail to internalize the effect of...
|Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis|
with Enrique G. Mendoza: w16020
Financial innovation and overconfidence about asset values and the riskiness of new financial products were important factors behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn \by observation" the true riskiness of a new financial environment. Early realizations of states with high ability to leverage assets into debt turn agents overly optimistic about the persistence probability of a high-leverage regime. Conversely, the first realization of a low-leverage state turns agents unduly pessimistic about future credit prospects. These effects interact with the Fisherian deflation mechanism, resulting in changes in debt, leverage, and asset pric...
Published: Boz, Emine & Mendoza, Enrique G., 2014. "Financial innovation, the discovery of risk, and the U.S. credit crisis," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 1-22. citation courtesy of