Essays in International Economics

Abstract

The first chapter of this dissertation investigates the impact of globalization on inflation in the context of a two-country New Keynesian model. Three questions have been raised in the recent literature: Has globalization lowered long-run inflation? Has globalization affected short-run dynamics of inflation? Has globalization been a source of shocks for the inflation process? Here, these questions are framed in terms of the effects of increased openness on different aspects of open-economy Phillips curves, considering different scenarios for the measure of inflation, and for the assumed export-pricing behavior of firms. The main qualitative prediction of the model is that globalization makes Phillips curves flatter. Quantitatively, the effects of globalization on inflation are modest: increased openness only slightly decreases the slope of Phillips curves, domestic factors are still the main determinants of inflation, and globalization does not lead to a substantial increase in the volatility of shocks to the inflation process.

The second chapter explores another angle for the impact of openness. Many studies have estimated the so-called New Keynesian Phillips curve (NKPC), with mixed results. This chapter thus investigates whether several dimensions of openness to international trade, in particular the distinction between traded and nontraded goods, affect the specification of the NKPC that can be brought to the data. More specifically, which additional control variables should be included in estimating the NKPC, relative to its closed-economy counterpart? We ask this question for both domestically produced goods' and consumption expenditure's inflation, considering different scenarios for nontradability, in final goods and intermediate inputs, and for the assumed export-pricing behavior of firms, namely Producer Currency Pricing and Local Currency Pricing. We find that nontradability matters: estimation of the NKPC not accounting for these aspects is likely to produce biased results.

The third and last chapter, co-authored with Alexis Antoniades, studies exchange rate pass-through and its determinants using scanner data on about 85% of the fast moving consumer goods (FMCGs) sold by 1,041 outlets in the United Arab Emirates between January of 2005 and December of 2010. The data, reported at the barcode level at each outlet, are augmented with Country-of-Origin (COO) information that was collected from the products' labels. At the aggregate level, we find exchange rate pass-through on imported consumer goods to be 3% in the short-run and 20% in the long-run. We then show that exchange rate pass-through is correlated positively with market share, negatively with product quality, and negatively with the elasticity of substitution of the products within specific FMCGs categories.