Arpita Chatterjee

Multi-Product Firms and Exchange Rate Fluctuations

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how firms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specific marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specific and product-specific export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations. (JEL F14, F31, F33, O19, O24)

Effects of Us Quantitative Easing on Emerging Market Economies

We estimate international spillover effects of US Quantitative Easing (QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock with non-recursive identifying restrictions. We estimate strong and robust macroeconomic and financial impacts of the US QE shock on US output, consumer prices, long-term yields, and asset prices. The identified US QE shock is then used in a monthly Bayesian panel VAR for emerging market economies to infer the spillover effects on these countries. We find that an expansionary US QE shock has significant effects on financial variables in emerging market economies. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the Fragile Five countries compared to other emerging market economies. We however do not find significant effects of the US QE shock on output and consumer prices of emerging markets.

Understanding Wage Inequality in Australia

In this paper we document rise in wage inequality in Australia over the last decade. A key driver of this inequality is unobservable or residual inequality. We decompose residual wage inequality into permanent and transitory components. The estimates of the permanent shock from the first difference approach allow us to reconcile life-cycle wage inequality.

Global Spillover Effects of US Uncertainty

Spillover effects of US uncertainty shocks are studied in a panel VAR of fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to differential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital flows.

Multi-product exporters, variable markups and exchange rate fluctuations

In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. In a theoretical framework, we show that firms increase their markup and producer prices following a real depreciation and that this increase is greater for products with higher productivity, a consequence of local distribution costs. We estimate markups at the market-product-plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that within-firm heterogeneity is a key determinant of plants response to exchange rate shocks. We also provide some evidence in favour of a local distribution cost channel of incomplete exchange rate pass-through.

Impact of China on World Commodity Prices and Commodity Exporters

We study the effect of a domestic shock in China on the real economy and financial markets of a commodity exporting country. We estimate a dynamic factor model using Bayesian methods to identify a China factor and a global factor using monthly macroeconomic data from China and rest of the world. We, then, assess implications of the China factor on global commodity prices and macroeconomy of a commodity exporting nation in a reduced form Bayesian VAR. A negative China shock causes fall in global commodity prices leading to output loss and stock market fall in these countries. China shock affects output of only a subset of countries in our sample compared to US shock, which affects all countries. Stock markets of commodity dependent countries respond strongly and more quickly to China shock than to US shock. China shock also has more persistent effect on commodity prices than US shock.

Full Information Estimation of Household Income Risk and Consumption Insurance

Blundell, Pistaferri, and Preston (2008) report an estimate of household consumption insurance with respect to permanent income shocks of 36%. Their estimate is distorted by an error in their code and is not robust to weighting scheme for GMM. We propose instead to use quasi maximum likelihood estimation (QMLE), which produces a more precise and signi cantly higher estimate of consumption insurance at 55%. For sub-groups by age and education, di erences between estimates are even more pronounced. Monte Carlo experiments with non-Normal shocks demonstrate that QMLE is more accurate than GMM, especially given a smaller sample size.

Trade Liberalization and Intergenerational Occupational Mobility in Urban India

In this paper, we make two novel contributions to the literature on trade and inequality. First, we show that the same mechanism that causes greater cross-sectional inequality, higher relative demand for skill, also facilitates intergenerational occupational mobility. In particular, we develop a stylized model that shows that the innovation induced by international trade causes an increase in the employment share of high-skill occupations. In turn, this allows an increasing number of sons to enter better occupations than their father. We then exploit spatial variation in exposure to trade liberalization in urban India to test our model’s prediction. Our empirical results confirm that sons that live in urban districts with a greater exposure to trade liberalization have a higher probability of being in a better occupation than their father. Further, as predicted by our model, we find that this positive impact of trade liberalization on intergenerational mobility is stronger in relatively technologically advanced districts. In a second contribution, we show that increased investment in education alone need not facilitate intergenerational occupational mobility. Instead, it only does so in urban districts where there has been a sufficient increase in the employment share of high-skill occupations.

Globalization and Monetary Policy Comovement: Evidence from G-7 Countries

This paper empirically characterizes comovement in monetary policy of G-7 countries during 1980-2009. I estimate a Taylor rule for each country and use residual from the Taylor rules to estimate a dynamic latent factor model with common and Europe speci c factors. I quantify importance of the G-7 factor in explaining comovement in residual variation of monetary policy and show that the G-7 factor is particularly important during a period of globalization (1988-2003). I estimate dynamics of importance of the G-7 factor using rolling sub-samples and show that trade-openness increases comovement in monetary policy in Europe.