Monetary Policy, Capital Controls, and International Portfolios JMP version Slides
Revise and resubmit, Review of Economic Studies.
Abstract: I study optimal monetary policy and capital controls in an open economy New Keynesian model with endogenous portfolio choice. I develop an approximation method to characterize the solution sharply. The optimal policy balances two goals: (i) stabilizing output and inflation and (ii) enhancing the insurance properties of home-currency assets. The relative importance of these goals depends on the international portfolio. When the portfolio is optimally chosen, its sensitivity to home-currency fluctuations increases as the need for insurance grows, further amplifying the planner's focus on insurance. This effect is significant. In a calibrated model for Canada, if the portfolio were fixed rather than optimal, the optimal weight on insurance would be about seven times smaller. Despite aggregate-demand externalities and incomplete markets, implementing the optimal portfolio does not require differential capital controls across asset classes.
Exporter Survival with Uncertainty and Experimentation (with Juan Carlos Hallak and Yongkun Yin)
Revise and resubmit, Journal of International Economics.
Abstract: Two facts distinctively separate exporter dynamics from firm dynamics. One is the strikingly low survival rate of new entrants into export markets. The second is that new entrants survive less than re-entrants. We argue that these two facts are critical to discipline exporter dynamics models because many sources of firm heterogeneity (e.g. fixed costs) do not affect survival rates when firms time their entry decision optimally. We extend a standard exporter dynamics model by positing that firms experiment to resolve an uncertain component in foreign-market profitability. We estimate the model using customs data from Peru. Despite its parsimony, having only four relevant parameters, the model matches the survival profile of entrants and re-entrants. It is also sufficiently rich to deliver predictions about many exporter dynamics facts highlighted in the literature. Finally, we exploit variation across products and markets to provide additional evidence supporting the model's experimentation mechanism.
Firm Export Dynamics in Interdependent Markets (with Alonso Alfaro-Ureña, Juan Manuel Castro-Vincenzi, and Eduardo Morales)
Revise and resubmit, American Economic Review.
We estimate a model of firm export dynamics featuring cross-country complementarities. The firm decides where to export by solving a dynamic combinatorial discrete choice problem, for which we develop a solution algorithm that overcomes the computational challenges inherent to the large dimensionality of its state space and choice set. According to our estimated model, firms enjoy cost reductions when exporting to countries geographically or linguistically close to each other, or that share deep trade agreements. Countries, especially small ones, sharing these traits with attractive destinations receive significantly more exports than in the absence of complementarities.