Essays in international economics
Author(s)Fanelli, Pablo Sebastiáin
Massachusetts Institute of Technology. Department of Economics.
Iván Werning and Arnaud Costinot.
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This thesis consists of three chapters on international economics. The first chapter explores the implications of the large increase in cross-border holdings of financial assets for monetary policy and capital controls. I study an open economy model with nominal rigidities, incomplete markets, and assets denominated in home and foreign currency. I develop an approximation method that allows me to characterize the optimal policy sharply. The planner trades-off stabilizing output gaps with creating insurance via cross-country balance-sheet effects. Perhaps surprisingly, as insurance considerations become more important, home-currency positions become larger, and the excess-return volatility of home-currency assets actually decreases, rather than increases as one would expect with fixed ad hoc portfolios. Capital controls are not called for by the approximate solution, i.e., private portfolio decisions are approximately efficient. In my baseline calibration, the welfare gains from the optimal policy are 1.5 times larger than those from inflation-targeting. The second chapter, joint with Ludwig Straub, develops a theory of foreign exchange interventions for small open economies. In the model, the central bank can implement nonzero spreads between home- and foreign-currency bonds by managing its portfolio due to financial frictions that limit arbitrage by the private sector. Nonzero spreads are costly as they allow foreign intermediaries to make carry-trade profits. Optimal interventions balance these costs with terms of trade benefits. The optimal policy gives rise to a smooth path for the spread, relying on credible promises of future interventions (forward guidance). By contrast, we find smoothing exchange rates aggressively is not optimal since it invites costly speculation. We conclude with a multi-country extension of our model. The third chapter, joint with Juan Carlos Hallak, studies the relevance of uncertainty and experimentation as a central feature of exporter dynamics. We show that a standard model without these features cannot explain two key facts of exporter dynamics: the strikingly low survival rates one year after entering a foreign market, and the novel fact that re-entrants in export markets are more likely to survive than first-time entrants. We develop a tractable model with experimentation that can explain these facts. We also provide support for the main mechanism of the model by exploiting variation in the degree of uncertainty across products and markets.
Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2018.Cataloged from PDF version of thesis.Includes bibliographical references (pages 213-221).
DepartmentMassachusetts Institute of Technology. Department of Economics.
Massachusetts Institute of Technology