October 09, 2012
International Finance and Open Economy Macro
Michael Hutchison, Professor of Economics at UC Santa Cruz, and Helen Popper, Professor of Economics at Santa Clara University, have organized the West Coast Workshop on International Finance and Open Economy Macroeconomics, taking place on Friday, October 19th. Those interested in thinking in a serious fashion about international should take a look.
The program includes:
- “Risk Sharing with the Monarch: Contingent Debt and Excusable Default in the Age of Philip II,” by Mauricio Drelichman (University of British Columbia) and Hans-Joachim Voth; discussed by Philip Brock (University of Washington).
- “Crisis and Commitment: Inflation Credibility and the Vulnerability to Sovereign Debt Crises,” by Manuel Amador (Stanford University) et al., discussed by Brian Wright (UC Berkeley).
- “The Effect of Capital Controls and Prudential FX Measures on Options-Implied Exchange Rate Volatility and Tail Risk,” by Thomas Wu (UC Santa Cruz) and Marius Rodriguez (Federal Reserve Bank of San Francisco), discussed by Michael Melvin, (BlackRock)
- "Financial Reforms and Growth: the Role of Savings,” by Goncalo Pina (Santa Clara University), discussed by Katheryn Russ (UC Davis)
- “FX Options and Financial Crisis,” by Yu-Chin Chen (University of Washington), discussed by Arunima Sinha (Santa Clara University)
- “Pass-through in Online Markets,” by Yuriy Gorodnichenko (UC Berkeley) and Oleksandr Talavera, discussed by Robert Dekle (University of Southern California)
- “Threatening to Offshore in a Search Model of the Labor Market,” by Sylvain Leduc (Federal Reserve Bank of San Francisco) and David M. Arseneau, discussed by Carl Walsh (UC Santa Cruz)
- "Asset Liquidity and International Portfolio Choice," by Ina Simonovska (UC Davis) and Athanasios Geromichalos, discussed by Ken Kletzer (UC Santa Cruz)
These papers cover a series of topics important in international economics, and economics more broadly. For instance, economists often describe the characteristics of idealized worlds where one can buy securities that have payoffs that are conditioned on outcomes. Such securities do not appear in reality. This is true for sovereign debt as well. But Drelicman and Voth note:
Contingent sovereign debt can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The data also strongly suggest that the defaults that occurred were excusable – they were simply contingencies over which Crown and bankers had not contracted previously.
Gorodnichenko and Talavera present new evidence on price stickiness (which -- in my view -- is ruled out a priori, so as to obtain counterfactual full employment descriptions of the economy’s workings):
This paper documents basic facts about prices in online markets in the U.S. and Canada which is a rapidly growing segment of the retail sector. While less rigid than prices in brick-and-mortar stores, online price exhibit significant stickiness (price spells can be as high as one month of average). Furthermore, there is significant dispersion of prices even for identical goods within and across countries. The paper shows that for online markets price differentials across countries are adjusted faster (half-life of about 4 months) and the pass-through of nominal exchange rate is larger (approximately 35%) than the corresponding counterparts of goods sold in regular stores. Degree of competition, stickiness of prices, synchronization of price changes, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials.
I’ll put up the links to these papers and presentations as they become available. Update, 10/10, 11:30am: Links to most papers now included.
Posted by Menzie Chinn at October 9, 2012 06:40 PMdigg this | reddit
Frontline had a very good documentary on Obama and Romney last night. Well worth seeing if you have the chance.
Posted by: Steven Kopits at October 10, 2012 09:27 AM