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Transmission of Shocks Across Countries

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 104-B
Hosted By: American Economic Association
  • Chair: Christoph Boehm, Princeton University

Are supply curves convex? Implications for state-dependent responses to shocks

Christoph Boehm
,
Princeton University
Nitya Pandalai-Nayar
,
Princeton University
Aaron Flaaen
,
Federal Reserve Board

Abstract

This paper studies whether responses to demand shocks are state dependent. To guide our empirical analysis we develop a putty clay model in which short-run capacity constraints generate a convex supply curve at the industry level. Using a sufficient statistics approach, we estimate the model and find strong support for state-dependent responses to shocks. Industries with low initial capacity utilization rates expand production much more after dollar depreciations or defense spending shocks than industries that produce close to their capacity limit. Further, prices rise after such demand shocks only if the initial level of capacity utilization is high. Our evidence is consistent with convex supply curves at the industry level and suggests that capacity constraints are a likely candidate for generating state dependent responses to shocks.

Input Linkages and International Monetary Spillovers

Robert Johnson
,
Dartmouth College
Rudolfs Bems
,
University of Tokyo

Abstract

This paper studies how cross-border input linkages alter the transmission of monetary shocks across countries. We extend a workhorse open economy New Keynesian model to distinguish final goods from intermediate inputs in production and incorporate input-output linkages across countries. In the model, input linkages are both a source of real rigidities in price setting and a counterweight to the standard beggar-thy-neighbor effects of monetary expansions. Calibrating the model to match multi-country input-output tables, we quantify how the how input linkages modify the transmission of monetary shocks across countries. The model and results shed new light on the role of global supply chains in understanding the logic of currency wars, the gains from monetary cooperation, the cost-benefit trade-off for fixed exchange rates, and inflation spillovers across countries.

International Linkages and the Changing Nature of International Business Cycles

Wataru Miyamoto
,
Bank of Canada
Thuy Lan Nguyen
,
Santa Clara University

Abstract

We quantify the effects of changes in international input-output linkages on the nature of business cycles. We build a multi-sector multi-country international business cycle model that matches the input-output structure within and across countries. We find that, in our 23 countries sample with manufacturing and non-manufacturing sectors, changes in the input-output linkages within and across borders between 1970 and 2007 causes a 21% drop in output volatility in a median country and a small increase in cross-country output correlations. Our decomposition attributes about 11% of the drop in output volatility to changes in international input-output linkages.

Volatility in the Small and in the Large: The Lack of Diversification in International Trade

Francis Kramarz
,
CREST-ENSEA
Julien Martin
,
University of Quebec-Montreal
Isabelle Mejean
,
CREST-Ecole Polytechnique

Abstract

We study how different sources of fluctuations interact with the microstructure of trade networks to shape the volatility of exports at the firm-level and in the aggregate. Four shocks affect transactions – a macroeconomic shock and three individual shocks hitting the exporters, their foreign partners, and their matches. We structurally estimate these shocks using data on the transactions connecting French exporters to their individual European buyers. Individual shocks explain half of aggregate fluctuations and the entirety of individual fluctuations. The volatility of sales across firms and countries are well-explained by the cross-sectional heterogeneity in the diversification of their trade networks.
Discussant(s)
Yuriy Gorodnichenko
,
University of California-Berkeley
Ryan Monarch
,
Federal Reserve Board
Wataru Miyamoto
,
Bank of Canada
Kei-Mu Yi
,
University of Houston
JEL Classifications
  • F4 - Macroeconomic Aspects of International Trade and Finance
  • E3 - Prices, Business Fluctuations, and Cycles