Featured Speaker   (November 27, 2018)   Gita Gopinath   Harvard University

Dominant Currency Paradigm

About this Lecture

Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants assume prices are set in the producer's currency or in local currency. We model instead a 'dominant currency paradigm' characterized by three features: pricing in a dominant currency, pricing complementarities, and imported input use in production. We test this paradigm using both a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs that covers 91% of world trade, and using firm level evidence from Colombia. In strong support of the paradigm we find that: (1) Non-commodities terms of trade are essentially uncorrelated with exchange rates. (2) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions, and this effect is increasing in the share of imports invoiced in dollars. (3) U.S. import volumes are significantly less sensitive to the bilateral exchange rate, as compared to other countries' imports. (4) A 1% U.S. dollar appreciation against all other currencies in the world predicts a 0.6% decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle.

2018 DEC Lectures

VIEW THE REPLAY: Wednesday, January 31: Tavneet Suri, Massachusetts Institute of Technology

VIEW THE REPLAY: Tuesday, February 6: Pascaline Dupas, Stanford University

VIEW THE REPLAY: Tuesday, March 13: Pinelopi Goldberg, Yale University

VIEW THE REPLAY: Tuesday, April 24: Rohini Pande, Harvard University

VIEW THE REPLAY: Monday, May 21: Oriana Bandiera, LSE

VIEW THE REPLAY: Monday, June 18: Rema Hanna, Harvard University

VIEW THE REPLAY: Monday, July 16: Dina Pomeranz, University of Zurich

VIEW THE REPLAY: Monday, October 22: Alice Evans, King's College London

Tuesday, November 27: Gita Gopinath, Harvard University

Wednesday, December 12: Nancy Qian, Northwestern University

Monday, January 14, 2019: Jessica Goldberg, University of Maryland

Tuesday, February 12, 2019: Seema Jayachandran, Northwestern University

Monday, May 6, 2019: Eliana La Ferrara, Bocconi University