Research

Government Spending and International Transmission: Fiscal Rules in Imperfect Financial Markets  (JMP) 

I provide a unified explanation to two prominent puzzles in international economics: the responses of the real exchange rate (RER) and net trade flows to government spending shocks, and the RER disconnect. I develop a theory where agents face costs to re-balance their portfolios between domestic and foreign assets. When the supply of government bonds rises, the RER depreciates so that the return on this bond increases to offset portfolio re-balancing costs. This triggers an expenditure switching effect that raises net trade. This mechanism is crucial to capture the responses of the RER and net trade to government spending shocks and contributes considerably to account for the RER disconnect, demonstrating that fiscal policy is a key driver of international business cycles.

Real Exchange Rate and Net Trade Dynamics: Financial and Trade Shocks (with Soo Kyung Woo, submitted) 

This paper studies the drivers of the US real exchange rate (RER), with a particular focus on its comovement with net trade (NT) flows. We consider the entire spectrum of frequencies, as the low-frequency variation accounts for 61 and 64 percent of the unconditional variance of the RER and NT, respectively. We develop a generalization of the standard international business cycle model that successfully rationalizes the joint dynamics of the RER and NT while accounting for the major puzzles of the RER. We find that, while financial shocks are necessary to capture high frequency variation in RER, trade shocks are essential for the lower frequency fluctuations. 

Mitigating International Supply-Chain Risk with Inventories and Fast Transport (with George Alessandria, Ryan Monarch, and Kim Ruhl, draft coming soon)

We study, theoretically and empirically, how firms use inventories and alternative transport modes in the presence of demand and supply shocks. We build an sS model of an importer reselling an input subject to stochastic demand with fixed and variable input ordering costs that differ by the speed of shipment. We show that 1) U.S. supply chains outside of NAFTA can be managed like those in NAFTA using air shipments; 2) having the option to ship products by air is valuable and the value is proportional to the reduction in inventories; 3) large positive industry demand shocks are accommodated by a shift to air; 4) distant supply chains can better adjust to large industry demand shocks owing to the extra inventories on hand and the ability to shift to air shipment. We show our model captures the margins of adjustment in Personal Protective Equipment trade following the COVID shock.