Publications
"The Composition of Capital Inflows When Emerging Market Firms Face Financing Constraints” with Katherine A. Smith.2008. Forthcoming at the Journal of Development Economics. (PDF Slides: Short, Long)
http://dx.doi.org/10.1016/j.jdeveco.2008.05.003
http://dx.doi.org/10.1016/j.jedc.2006.09.012
“Implications of Intellectual Property Rights for Dynamic Gains from Trade” with Michelle P. Connolly. American Economic Review Papers and Proceedings 95(2), May 2005, pp. 318—322.
http://dx.doi.org/10.1257/000282805774670022
“Currency Boards, Dollarized Liabilities, and Monetary Policy Credibility” with Mark Spiegel. Journal of International Money and Finance 22(7), December 2003, pp. 1065—1087.
http://dx.doi.org/10.1016/j.jimonfin.2003.09.010
Work in Progress
“Why Do Emerging Economies Import Direct Investment and Export Savings? A Story of Financial Underdevelopment” with Katherine A. Smith
(PDF Slides: Short) Preliminary
The net foreign asset positions (NFAP) of developing countries and emerging markets tend to be short equity and either short or long debt, while most industrial nations are long equity and short debt. This paper proposes that financial system inefficiencies associated with underdeveloped financial markets can explain this difference in the NFAPs. Financial system imperfections typically found in emerging markets and developing countries raise the cost of debt financing for domestic firms. This in turn leads to three distinct effects; a greater need for firms to precautionary save, increased vulnerability to foreign multinationals buy-outs, and a drastic limitation on the purchase of foreign firms. We extend a small open economy framework to study the financing decisions of firms operating under financial frictions. In equilibrium, we can obtain a large negative net equity position and a smaller negative net debt position as a result of incremental financing decisions of the firms, rationalizing the observed NFAP in most non-industrial economies.
“The impact of Financial Frictions on a Small Open Economy: When Current Account Borrowing Hits a Limit”
(PDF) (FRBSF Working Paper) (PDF Slides)
The evidence of
the last 20 years of recurring output busts and rapid reversals of the current
account in emerging markets indicates that domestic agents may not be able to
borrow in international capital markets to fully insure themselves against
internal and external shocks. This paper models this phenomenon as a form of
excess volatility by introducing a financial friction into a stochastic model
of a small open economy. The financial
friction limits the current account deficit to a fixed fraction of gross
domestic product. The paper shows that conditional volatility and asymmetry are
significant statistical characteristics of the GDP and current account that
reflect the excess volatility and the current account reversals. Using a simulated method of moments approach,
we show that the model can explain the conditional volatility and asymmetry of
Mexican GDP and the current account.
“Financial Frictions, Distribution Costs, and Current
Account Crises” with Sylvain Leduc (PDF Slides)
Current account
crises in emerging markets are characterized by large increases in interest
rates, big drops in output, and large real currency depreciations. Current
models of crisis with financial frictions do not generate very large movements
in these variables. Recent work has shown that the introduction of distribution
costs, in otherwise standard open-economy models, can work to amplify the
movements in real exchange rate. In this paper, we model a distribution sector
that combines tradables and nontradables to produce a consumer good and also
faces a financing constraint. In our model, a large increase in interest rates
raises the cost of distributing goods and therefore brings about a fall in the
supply of distribution services. In turn, the increase in the cost of
distribution triggers a fall in tradable output, via a fall in the demand for
traded goods. We find that the introduction of distribution services amplifies
the responses of output, imports, and the real exchange rate in episodes of
current account crises.
“North-South Technological Diffusion:A New Case for Dynamic Gains from Trade” with Michelle P. Connolly.
(tech.pdf)(FRBSF Working Paper) (PDF Slides)
This paper studies the transitional dynamics in a quality ladder model of endogenous growth in which North-South trade leads to technological diffusion through reverse engineering of intermediate goods. The concept of learning-to-learn is incorporated into both imitative and innovative processes, which in turn drive domestic technological progress. International trade with imitation leads to feedback effects between Southern imitators and Northern innovators who compete for the world market. Consequently, both regions face transition paths dependent on their relative technologies. We solve the model numerically to illustrate the transition paths and welfare effects of Southern trade liberalization. While particular welfare results depend on parameter choices, we demonstrate that focusing solely on steady-state results leads to incorrect welfare interpretations.
“Intellectual Property Rights Design and Dynamic Gains from Trade” with Michelle P. Connolly.
A simple intellectual property rights (IPRs) framework is introduced into a dynamic quality ladder model of technological diffusion between innovating firms in one country and imitating firms in another country. The presence of technological spillovers and feedback effects between firms in the two countries demonstrates that, even when steady state growth increases, transition costs sometimes dominate steady state welfare gains. Most existing models of international IPRs find that high intellectual property enforcement in the imitating country leads to welfare gains in the innovating country at the expense of the imitating country. In contrast, we find IPR regimes that, even after accounting for transition costs, positively affect welfare in both countries. Preferred IPR regimes maintain competition from imitative activity but enforce some remuneration to innovators for the spillovers they generate. Well-designed IPR regimes imposed at the time of trade liberalization will be welfare enhancing for both regions relative to trade liberalization without IPR enforcement.
Discussions
Discussion of "Currency Crisis and Foreign Credit in Emerging Markets: Credit Crunch or Demand Effect'" by Galina Hale and Carlos Arteta, 2006 SITE (PDF)
Discussion of "Dual Labor Markets and Business Cycles'" by David
Cook and Hiromi Nosaka, 2006 CPBS Conference (PDF)
Discussion of "Financial Integration and the Wealth Effect of Exchange Rate Fluctuations" by Cedric Tille, SCIEA, Spring 2005 (PDF)
Discussion of "Defaultable Debt, Interest Rates and the Current Account" by Mark Aguiar and Gita Gopinath, FRBSSF UMD "Emerging Markets and Macroeconomic Volatility Conference", 2004 (PDF)
Discussion of "Trade, Interdependence and Exchange Rates" by Doireann Fitzgerald, 2004 UCSC Trade Workshop (PDF)
Discussion of "Dollarization and Financial Integration" by Cristina Arellano and Jonathan Heathcote, ITAM Summer Conference, August 2003 (PDF)
Discussion of "Long-Run Supply Effects and the Elasticities Approach to Trade" by Joe Gagnon, SCIEA, Spring 2003 (PDF)
Discussion of "Stock Market Cycles, Instability and Financial Liberalization" by Sebastian Edwards, Javier Gomez Biscarri and Fernando Perez de Gracia, UCSC 2003 "Regional and International Implications o the Financial Instability in Latin America" conference, (PDF)