Abstracts of Doireann Fitzgerald’s Papers
Publications:
“Can Trade Costs Explain Why
Exchange Rate Volatility Doesn’t Feed into Consumer Prices?” (September 2007). Journal of Monetary Economics,
forthcoming. Data and Programs
Abstract: If countries
specialize in imperfectly substitutable goods, trade costs increase the share of
expenditure devoted to domestic output, reducing the exposure of consumer price
inflation to exchange rate changes. I present a multi-country flexible-price
model where expenditure shares are inversely related to trade costs through a
gravity equation. In this setting, consumer price inflation can be approximated
as an expenditure share weighted average of the contributions to inflation from
all countries. I use data from 24 OECD countries, 1970-2003, to estimate a
structural gravity model. I combine the fitted expenditure shares from the
estimation with actual data on exchange rates to construct predictions of
inflation. The behavior of these predictions indicates that trade costs can
explain both qualitatively and quantitatively the failure of exchange rate
volatility to feed into inflation.
“Specialization,
Factor Accumulation and Development,” (December 2004), joint with Juan Carlos Hallak,
Journal of International Economics 64
(2), 277-302.
Abstract: We estimate
the effect of factor proportions on the pattern of manufacturing specialization
in a cross-section of OECD countries, taking into account that factor
accumulation responds to productivity. We show that the failure to control for
productivity differences produces biased estimates. Our model explains 2/3 of
the observed differences in the pattern of specialization between the poorest
and richest OECD countries. However, because factor proportions and the pattern
of specialization co-move in the development process, their strong empirical
relationship is not sufficient to determine whether specialization is driven by
factor proportions, or by other mechanisms also correlated with level of
development.
Working Papers:
“Trade Costs, Asset Market
Frictions and Risk Sharing: A Joint Test,” (May 2007).
Abstract: Why does
international consumption risk sharing fail? I propose a new test that uses
data on bilateral imports to identify whether both trade costs and asset market
frictions are necessary to explain this failure. I implement the test using a
sample of 73 developed and developing countries, 1970-2000. The null hypothesis
of no trade costs is overwhelmingly rejected for both developed and developing
countries. Two versions of the test give contrasting results on the role of
asset market frictions. The baseline test does not reject the null hypothesis
of frictionless asset markets within developed countries, though it does reject
between developed and developing countries. A variant on the baseline test
finds that the marginal utility of wealth moves with current income for both
developed and developing countries. But the sensitivity of the marginal utility
of wealth to income in developed countries is 1/3 of what it is in developing
countries, and is only marginally significantly different from zero.
“Exchange Rates and Producer
Prices: Evidence From Micro-Data,” with Stefanie
Haller (June 2008).
Abstract: We use a
unique data set that matches survey data on domestic and export prices to plant
census information to address the following questions. Are desired markups
constant or variable? How are markups adjusted in response to demand shocks?
Does the probability that prices change respond to demand shocks? Our
identification strategy is based on matched observations for the price charged
for a given product by a given plant in two markets that are segmented by
variable exchange rates. Changes in exchange rates shift perceived relative
demand across the two markets while potentially also affecting costs. We use
fixed effects to control for changes in marginal cost and focus on markup
responses to demand shocks. Our findings suggest that desired markups are not
constant. In particular, it appears that desired markups increase in response
to increases in demand and fall in response to reductions in demand. Our
findings on the state-dependence of price setting are equivocal. We are unable
to distinguish between the case of no state dependence and the case of state
dependence combined with a unit elasticity of desired markups with respect to
exchange rate-driven demand shocks.
Old Stuff:
“Terms-of-Trade Effects,
Interdependence and Cross-Country Differences in Price Levels,” (May 2003).
Abstract: This paper
revisits the theory and the empirics of the classic Balassa-Samuelson
productivity model of cross-country differences in price levels. The classic
model says that price levels are positively related to productivity in the
traded sector and negatively related to productivity in the non-traded sector.
I show that once endogenous specialization and costly intra-temporal trade are
added to the classic model, this result is modified in two ways. First, the
elasticity of relative prices with respect to traded sector productivity
depends on the strength of terms-of-trade effects, and may even be negative if
terms-of-trade effects are sufficiently strong. Second, the asymmetric trade
patterns induced by costly trade mean that the relative price level between a
pair of countries depends on productivity in all other
countries that these two countries trade with. I simulate the model with trade
costs, and show that both of these effects are potentially important. I then
use the insight that traded-sector production is specialized to reassess the
empirical evidence on productivity models of price level differences. I show
that the evidence of other researchers is inconclusive. I estimate the
relationship in a way that is consistent with the theoretical model. The model
is not rejected, but the evidence is not strongly in favor either.
“Exchange Rates and Asymmetric
Shocks: How Did Europe Respond Before EMU?” (April 2000).
Abstract: In a currency
union, regional adjustment to asymmetric shocks can be decomposed into four
margins. Adjustment can take place through employment, unemployment,
participation and wages. Where regions or countries have different currencies,
exchange rates are a fifth margin of adjustment. I explore the response to
shocks of wages denominated in a common currency under different conditions of
exchange rate flexibility. I show that this wage measure is more responsive the
greater the degree of exchange rate flexibility. This suggests that the
exchange rate was potentially an important margin of adjustment to shocks in
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Last update to this page: January 2008