Ananth Ramanarayanan

Assistant Professor, Economics Department, University of Western Ontario



1. Working papers

International Risk Sharing with Endogenously Segmented Asset Markets

August, 2017

Asset price data imply a large degree of international risk sharing, while aggregate consumption data do not. We evaluate whether a model with trade in goods and endogenously segmented asset markets accounts for this discrepancy. Active households pay a fixed cost to transfer income into or out of assets. These households share risk within and across countries, and their marginal utility growth prices assets, so asset prices imply high international risk sharing. Inactive households consume current income and do not share risk, so aggregate consumption (which averages across all households) reflects lower risk sharing. Trade in goods is essential for generating these differences in the asset price-based and the consumption-based measures of risk sharing. Indeed, without trade, consumption is constrained by domestic resources and there is no international risk sharing. The calibrated model predicts risk sharing measures in line with data, and also partly resolves the Backus-Smith-Kollmann puzzle.

Imported Inputs and the Gains from Trade

New Version: July, 2017

This paper quantifies how heterogeneity in importing across plants affects the aggregate welfare gains from trade. In the theoretical model, countries differ in their costs of producing intermediate inputs. Firms in each country choose a fraction of inputs to source from the lowest cost supplier country, with the rest purchased domestically. Sourcing more inputs requires higher up-front fixed costs, but reduces variable input costs. Importing decisions amplify marginal cost differences across plants. When calibrated to Chilean plant-level data, welfare gains from trade are 36 percent larger (9.13 vs. 6.69 percent) than in a model with homogeneous import shares but the same aggregate trade share and trade elasticity. 

2. Published papers

Imported Inputs, Irreversibility, and International Trade Dynamics

Journal of International Economics, 104, January 2017

In aggregate data, international trade volumes adjust slowly in response to relative price changes, an observation at odds with static models. This paper develops a model of trade in intermediate inputs in which heterogeneous producers face irreversibilities in adjusting their importing status. Changes in aggregate imports are accounted for by adjustment within importing plants, through reallocation between non-importers and importers, and through changes in the importing decisions of new and existing plants. When calibrated to Chilean plant-level data, the model shows that irreversibilities are important for generating aggregate and plant-level dynamics of trade áows in line with the data. In response to a permanent trade reform, increased importing at existing plants crowds out entry, raising consumption above its long-run level, and leading to welfare gains larger than a static model would imply.

Default and the Maturity Structure in Sovereign Bonds

(with Cristina Arellano)

Journal of Political Economy, 120(2), April 2012

This paper studies the maturity composition and the term structure of interest rate spreads of government debt in emerging markets. In the data, when interest rate spreads rise, debt maturity shortens and the spread on short-term bonds rises more than the spread on long-term bonds. We build a dynamic model of international borrowing with endogenous default and multiple debt maturities. Long-term debt provides a hedge against future fluctuations in spreads, while short-term debt is more effective at providing incentives to repay. The trade-off between these hedging and incentive benefits is quantitatively important for understanding the maturity structure in emerging markets.

Vertical Specialization and International Business Cycle Synchronization

(with Costas Arkolakis)

Scandinavian Journal of Economics, 111(4), December 2009

We explore the impact of vertical specialization - trade in goods across multiple stages of production - on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings.

Note: the version linked above is the last working paper version, with an additional unpublished appendix.