Inflation Dynamics in Advanced Economies: A Decomposition into Cyclical and Non-Cyclical Factors (2022), with Weicheng Lian
[IMF Working Paper No. 2022/091]
Featured in the IMF World Economic Outlook
Abstract: Inflation and unemployment rate were largely disconnected between 2000 and 2019 in advanced economies. We decompose core inflation into two parts based on the cyclical sensitivity of CPI components and document several salient facts: (i) both the cyclical and non-cyclical parts had surges across advanced economies in 2011, when unemployment rates had limited changes; (ii) the non-cyclical part had a downward trend between 2012 and 2019, which existed across countries, sectors, goods, and services; (iii) global indexes such as oil price, shipping costs, and a global supply chain pressure index do not explain the downward trend; and (iv) the cyclical part, after controlling for the impact of economic slack, also had a downward trend between 2012 and 2019. These patterns help disentangle competing explanations for the disconnect between inflation and unemployment rate. The approach has potential to help understand forces shaping price pressures during the pandemic and in the post-pandemic period ahead.
Intrafirm Trade and Exchange Rate Pass-Through (2023), revised draft coming soon
Abstract: About 30% of global trade is intrafirm trade within multinational enterprises. I document differences in the exchange rate pass-through (ERPT) between intrafirm and arm's length export prices by invoicing currency. For this purpose, I develop a measure of intrafirm trade in customs records based on the name similarity between the involved parties and analyse the sudden and large appreciation of Swiss franc against euro after an unexpected removal of the minimum exchange rate using Swiss customs records. While the intrafirm ERPT into export prices does not differ in the medium-run between invoicing currencies, it is larger than arm's length ERPT if invoiced in producer currency and smaller if invoiced in local currency. Therefore, the influence of intrafirm trade on the aggregate ERPT depends on the invoicing currency decomposition of arm's length trade. I show that the differences in ERPT extend to quantities.
Endogenous Product Adjustment and Exchange Rate Pass-Through (2023), with Sarah Lein [article] [working paper], Journal of International Economics, 140, 103706
Abstract: We document how product quality responds to exchange rate movements and quantify the extent to which these quality changes affect the aggregate pass-through into export prices. We analyze the substantial sudden appreciation of the Swiss franc post removal of the 1.20-CHF-per-euro lower bound in 2015 using export data representing a large share of the universe of goods exports from Switzerland. We find that firms upgrade the quality of their products after the appreciation. Furthermore, they disproportionately remove lower-quality products from their product ranges. This quality upgrading and quality sorting effect accounts for a substantial share of the total pass- through one year after the appreciation. We cross-check our results with the microdata underlying the Swiss export price index, which includes an adjustment factor for quality based on firms' reported product replacements, and obtain similar results.
Communication and Market Sharing: An Experiment on the Exchange of Soft and Hard Information (2021), with Catherine Roux and Christian Thöni [article] [working paper] International Economic Review, 62(1), pp. 175-198.
Abstract: We study the role of communication in collusive market sharing. In a series of Cournot oligopoly experiments with multiple markets, we vary the information that firms can exchange: hard information—verifiable information about past conduct—and soft information—unbinding information about future conduct. We find that the effect of communication on the firms’ ability to collude depends on the type of information available: while market prices increase only slightly with hard information the price raise due to soft information is substantial. Our results point to the types and contents of communication that should be of particular concern to antitrust authorities.
Production Networks, Invoicing Currency, and Shock Transmission, with Alessandro Ferrari, Eric Kammerlander, Sarah Lein and Frank Pisch
Does Ownership Matter in Exchange Rate Pass-Through? Evidence from Foreign Affiliates in Switzerland, with Jianlin Wang
The Granular Origin of Volatility