Job market paper:
Nominal exchange rates strongly co-move. However, little is known about the economic source of common variation. This paper examines how international trade links nominal exchange rates. First, I document that two countries that trade more intensively with each other have more correlated exchange rates against the U.S dollar. Second, I develop a general equilibrium multi-country model, where a shock to a single country propagates to the exchange rates of its trading partners and serves as a source of common variation. In the baseline three-country model, I show that the sign and the strength of correlation between exchange rates depend on the elasticities of trade balances of countries with respect to both exchange rates. As a result, the model's prediction about the relationship between bilateral trade intensity and exchange rates correlation depends on the currency in which international prices are set. Lastly, an augmented model is calibrated to twelve countries to quantitatively assess the importance of trade linkages. I find that trade linkages alone, with uncorrelated shocks across countries, account for 50% of the empirical trade-exchange-rates-correlation slope coefficient.
Resource sector's shocks propagation through input-output linkages in Australia, joint with Thomas Helbling, September 2018
The Australian economy depends significantly on its commodity-exporting activity. The mining boom and bust over the past decade or so have had a large impact on the economy even though the mining sector is relatively small in terms of value added and employment. This paper explores the amplification of mining shocks over the input-output linkages. In particular, we focus on industries that provide inputs to the mining sector. We analyze the effect of Australia's key commodities prices between 2006 and 2016 exploiting the cross-industry variation in sales exposure to the mining sector and quantify the overall output and employment effects of these shocks. We find that a one standard-deviation decrease in individual prices for some commodities decreases total employment by 0.75-0.82% and real output by 0.8%.
Work in progress:
Foreign Exchange Market and Macroeconomic Fundamentals, December 2017
This paper builds the general equilibrium model of exchange rate determination that explicitly incorporates the foreign exchange market. On the foreign exchange market, dealers trade currencies with each other and with end-user customers. I study quantitatively whether such a framework helps to account for the empirical disconnect of the nominal exchange rate from macroeconomic fundamentals. If the imbalances from customers' trade constitute a small share of the forex dealers' portfolios, the exchange rate can fluctuate due to liquidity shocks on the forex market without a significant effect coming from consumption, output and prices. In the baseline calibration, the model quantitatively accounts for low correlation of the exchange rate with macroeconomic fundamentals (consumption and output), high volatility of nominal exchange rates relative to these fundamentals and for the forward premium puzzle. It also reproduces the empirical findings of the microstructure literature: the positive correlation of the exchange rate changes with aggregate and financial-customers order flows and the negative correlation with corporate-customers order flow.