Working Papers

Monetary Policy, Capital Controls, and International Portfolios (new draft! ) JMP version Slides 

Abstract: I study optimal monetary policy and capital controls in a small open economy model with nominal rigidities, incomplete markets, and cross-border holdings of assets denominated in home and foreign currency. Monetary policy can enhance risk sharing across countries by influencing exchange rates. The strength of this channel depends on the international portfolio, giving rise to a potential rationale for capital controls. I develop an approximation method that allows me to characterize the optimal policy explicitly. I show that optimal monetary policy is a weighted average of an inflation target and an insurance target and characterize the optimal weight sharply. Perhaps surprisingly, as insurance considerations become more important, home-currency positions become larger, and the realized excess return volatility of home-currency assets actually decreases, rather than increases as one would expect with exogenous portfolios. In addition, I find that private portfolio decisions in small open economies are approximately efficient so that differential capital controls on foreign- vs. home-currency assets are not necessary.

Firm Export Dynamics in Interdependent Markets (with  Alonso Alfaro-Ureña, Juan Manuel Castro-Vincenzi, and Eduardo Morales)

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.

Export Survival with Uncertainty and Experimentation (with Juan Carlos Hallak)

Abstract: Two central facts characterize the dynamics of firm exports. One is the known fact that export survival rates are strikingly low one year after entering a foreign market. The other is the novel fact that re-entrants in export markets are more likely to survive than first-time entrants. Existing models of exporter dynamics cannot explain these two facts. In this paper, we develop a tractable model of exporter dynamics that can explain them by introducing uncertainty and experimentation. The model delivers analytical predictions on survival probabilities upon entry in a foreign market. In addition to the two facts, the model can also explain other exporter dynamics facts that have been the focus of previous work. We test the main mechanism of the model by exploiting variation in the degree of uncertainty across products and markets. The results support the relevance of uncertainty and experimentation as a central feature that characterizes exporter dynamics.