Abstract: We propose a novel method to separately identify time-varying aggregate export and import costs, imposing minimal identifying assumptions. We decompose these costs into common and idiosyncratic components and demonstrate that our measure accurately reflects policy changes and non-policy trade shocks. Exploiting quasi-experimental variation, we estimate the causal impact of trade cost shocks on key macroeconomic variables. Notably, we show that these shocks significantly affect trade balance and exchange rate dynamics. Given the relevance and frequency of these shocks, our findings emphasize these shocks' role in explaining global business cycle patterns.

Abstract: The Acid Rain Program (ARP) of the U.S. in the 1990s has long been referenced as a successful case in reducing sulfur-dioxide (SO2) emissions through the introduction of an emissions trading system (ETS). To comply with regulatory requirements, a coal-burning power plant could either source low-sulfur coal from the Powder River Basin (PRB), install a scrubber, switch to less-polluting sources, or shut down. We exploit fuel-sourcing transaction, generation by fuel source, and equipment installation records data at the individual power plant level to examine whether plants’ decisions under the ETS policy was indeed socially optimal for reducing emissions in the long run. Using a plant’s distance from the PRB as an instrument for sourcing cost of low-sulfur coal, we find that plants closer to the PRB are more likely to use the PRB coal. We then estimate the impact of the ARP on SO2 reductions, and further investigate jointly whether other factors, such as lower transportation costs, technological innovation, or adopting new fuel sources, better explain the observed reductions in SO2 emissions than the cap-and-trade policies of the ARP. Such findings have far-reaching implications for the efficacy of cap-and-trade policies and may hold generalizable lessons for environmental regulations at large.

• Presented at the 2024 SEA Conference: slides

Abstract: Identifying the effects of a second-moment oil price shock, i.e., an oil price uncertainty shock, is challenging as the price level and volatility move simultaneously and endogenously. This paper hence employs natural disasters, terrorist attacks, political coups and revolutions as instruments, to disentangle the effects of first- and second-moment shocks in the oil market. We find that an increase in oil price uncertainty leads to a significant decline in global economic activity, in addition to the downward pressures posed by increases in oil price levels.

• Presented at the 2023 KER International Conference: Slides

• Most recent draft: 2023.08.29

The External Sector Report is a flagship IMF publication that evaluates global external developments and offers a consistent analysis of the external positions of the world's major economies, covering over 90% of global GDP. I've had the pleasure of working with the team that produced this report, including an analytical chapter on commodity price swings.

• Official IMF post