Global Economic Interconnectedness: Inflation Expectations, Financial Sanctions, Currency Paradigm, and Greenhouse Gas Emissions
Paper Session
Saturday, Jan. 4, 2025 12:30 PM - 2:15 PM (PST)
- Chair: Jaewoo Lee, International Monetary Fund
International Trade and Macroeconomic Dynamics with Sanctions
Abstract
This paper studies international trade and macroeconomic dynamics triggered by the imposition of sanctions. We develop a two-country, two-sector model in which each country holds a comparative advantage: one (Home) in the production of differentiated consumption goods by heterogeneous firms with profits and markups, and the other (Foreign) in homogeneous intermediate goods, produced by identical firms without profits or markups. Foreign is assumed to be the target of sanctions imposed by Home. Sanctions include financial restrictions that exclude a portion of Foreign agents from international capital markets and trade bans on intermediate goods. Sanctions on consumption goods exclude a fraction of Home or/and Foreign firms from international trade. We show that sanctions trigger resource reallocation both within and across countries as production adjusts, influencing exchange rates and welfare. Welfare losses are more pronounced when sanctions target sectors where a country holds a comparative disadvantage. Focusing only on the long run and overlooking the initial dynamics results in inaccurate assessment of welfare impacts. While sanctions substantially reduce international economic comovement and contribute to global fragmentation, their effects on within-country business cycle properties are limited.Impact of Urban Sprawl on Greenhouse Gas Emissions
Abstract
This paper examines the impact of urban sprawl on carbon dioxide emissions. Utilizing county-level panel data, we investigate whether metropolitan areas covered by residential units that accommodate fewer households result in higher levels of carbon dioxide emissions from passenger cars or light-duty vehicles. We find that a one percentage point increase in the share of single detached housing units leads to a two percent increase in on-road carbon dioxide emissions per person. Our findings are further supported by robust evidence from alternative identification strategies based on instrumental variables.Dominant Currency Paradigm with Input-Output Linkages
Abstract
This paper investigates the relationship between invoicing currency and input-output(I-O) linkages in global trade. Specifically, the paper explores how countries respond
to dollar appreciation resulting from contractionary US monetary policy. I propose
a theoretical and quantitative framework to analyze this impact, taking into account
the exogenous currency of invoicing with I-O linkages. The model suggests that the
response to dollar appreciation depends on the interaction between dollar invoicing
shares and foreign intermediate input shares. To quantify the effect, a multi-country
dynamic general equilibrium model is built with calibrated I-O linkages and invoicing
shares. The quantitative results show that the expenditure switching of the calibrated
model is muted in half compared to a model with full dollar invoicing. This research
sheds light on the importance of invoicing currency and I-O linkages in global trade,
and provides implications on the global monetary policy.
JEL Classifications
- F2 - International Factor Movements and International Business
- F4 - Macroeconomic Aspects of International Trade and Finance