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Advances in International Finance

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Marriott Philadelphia Downtown, Meeting Room 403
Hosted By: Econometric Society
  • Chair: Matteo Maggiori, Harvard University

The Expansionary Lower Bound: A Theory of Contractionary Monetary Easing

Paolo Cavallino
,
International Monetary Fund
Damiano Sandri
,
International Monetary Fund

Abstract

In this paper, we provide a theory of the interaction between monetary

Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates?

Hanno Lustig
,
Stanford University
Adrien Verdelhan
,
Massachusetts Institute of Technology

Abstract

Compared to the predictions of complete market models,

Trade Network Centrality and Currency Risk Premia

Robert Richmond
,
New York University

Abstract

I uncover an economic source of exposure to global risk that drives international
asset prices. Countries which are more central in the global trade network have lower
interest rates and currency risk premia. To explain these findings, I present a general
equilibrium model where central countries’ consumption growth is more exposed
to global consumption growth shocks. This causes the currencies of central countries
to appreciate in bad times, resulting in lower interest rates and currency risk premia.
Empirically, central countries’ consumption growth covaries more with world consumption
growth and their equity Sharpe ratios are higher, further validating the proposed
mechanism.

Volatility Risk Pass-through

Riccardo Colacito
,
University of North Carolina-Chapel Hill
Mariano Massimiliano Croce
,
University of North Carolina-Chapel Hill
Yang Liu
,
University of Pennsylvania
Ivan Shaliastovich
,
University of Wisconsin-Madison

Abstract

We show novel empirical evidence on the significance of output volatility (vol) shocks for both currency and international quantity dynamics. Focusing on G-17 countries, we document that: (1) consumption and output vols are imperfectly correlated within countries; (2) across countries, consumption vol is more correlated than output vol; (3) the pass-through of relative output vol shocks onto relative consumption vol is significant, especially for small countries; and (4) consumption differentials vol and exchange rate vol are disconnected. We rationalize these findings in a frictionless model with multiple goods and recursive preferences featuring a novel and rich risk-sharing of vol shocks.
Discussant(s)
Andreas Stathopoulos
,
University of Washington
Luigi Bocola
,
Northwestern University
Rosen Valchev
,
Boston College
Pasquale Della Corte
,
Imperial College London and CEPR
JEL Classifications
  • A1 - General Economics