Research

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.

We study the reasons for the large, coincident increases in unbalanced international trade and overall trade from 1970 to 2019. We show that these two salient features--a rise in net and gross international trade--are largely a consequence of a reduction in intratemporal trade barriers rather than a substantial reduction in the frictions on intertemporal trade or greater asymmetries in business cycles. Beyond explaining changes in the distribution of gross and net trade, the decline in intratemporal trade frictions is consistent with a fall in the dispersion across countries in other key macro time series, including the real exchange rate, terms of trade, export-import ratio, relative spending, and relative GDP. 

Formerly circulated as "Rising Current Account Dispersion: Financial or Trade Integration?"

Recent studies on the U.S.-China trade dispute indicate that U.S. importers fully absorbed the increases in U.S. import tariffs. However, using firm-level data from the U.S. Census, we find incomplete tariff pass-through for firms that continue to import the same product from the same country. Large importers experience higher pass-through and account for a greater share of imports. Firms that import new products or source from different countries pay higher prices than those maintaining existing relationships. Thus, prior findings of complete pass-through reflect import reallocation toward firms with higher pass-through rates or toward costlier new supplier relationships. We explain these patterns using an importer model with firm-specific import prices and sourcing strategies. We find that fixed import costs, larger importers’ higher import prices, elastic foreign export supply, and larger importers’ greater bargaining power collectively account for these findings. We also revisit the welfare implications of tariffs under firm heterogeneity.

This paper studies the dynamic impact of trade barriers, using regional variations in exposure to the U.S.-Korea Free Trade Agreement. A key contribution is the introduction of theoretically robust measures of trade barriers, which account for demand responses and incorporate multiple channels through which tariffs affect trade. I find the conventional measures understate the true extent of trade barriers.  Applying the new measure, I find that lower barriers to exporting lead to increases in GDP and employment, while greater competition with foreign firms has a delayed negative effect. Access to cheaper inputs has a negative impact, especially on employment.

Formerly circulated as "The Dynamic Impact of Trade Liberalization: Evidence from U.S.-Korea FTA"