Markups and Inflation in Oligopolistic Markets: Evidence from
Wholesale Price Data
How do market power and nominal price rigidity influence inflation dynamics? We formulate a tractable model of oligopolistic competition and sticky prices, and derive closed-form expressions for the pass-through of idiosyncratic and common cost shocks to firms' prices. Using unpublished micro data for Canadian wholesale firms, we estimate that idiosyncratic cost pass-through is incomplete and independent of the sector price stickiness, while common cost pass-through declines with price stickiness. The estimates imply a degree of strategic complementarity that lowers the slope of the New Keynesian Phillips curve by 30% in a one-sector model and by 64% in a multi-sector model.
The Swift Decline of the British Pound: Evidence from UK Trade-invoicing after the Brexit Vote
Using administrative transactions data from the United Kingdom, we document a swift decline in sterling use among British exporters after the 2016 Brexit vote. Through a novel decomposition, we document most of this decline comes from two sources: (i) continuously-operating firms switching from sterling to dollars or local currencies and (ii) reductions in trade volumes and transactions for sterling-loyal firms. We quantify the role of firm and market heterogeneity in driving these changes and document that firms which served markets with more US competitors and used more dollar-invoiced imported inputs were more likely to switch to dollars after the Brexit vote. Altogether, our findings provide the first quantitative evidence on the channels that contribute to changes in aggregate invoicing shares amidst political upheaval.
Dominant Currency Dynamics:
Evidence on Dollar-invoicing from UK Exporters
How do the choices of individual firms contribute to the dominance of a currency in global trade? Using export transactions data from the UK over 2010-2016, we document strong evidence of two mechanisms that promote the use of a dominant currency: (1) prior experience: the probability that a firm invoices its exports to a new market in a dominant currency is increasing in the number of years the firm has used the dominant currency in its existing markets; (2) strategic complementarity: a firm is more likely to invoice its exports in the currency chosen by the majority of its competitors in a foreign destination market in order to stabilize its residual demand in that market. We show that the introduction of a managerial fixed cost of currency management into a model of invoicing currency choice yields dynamic paths of currency choice that match our empirical findings.
The Mutable Geography of Firms' International Trade: Evidence and Macroeconomic Implications
Exporters add and drop destination markets in response to a variety of global, national and industry-specific shocks. This paper empirically measures these changes using customs data from China (2000-2006) and the UK (2010-2016) and documents three novel facts. First, 30-40% of market changes within firms involve both adding and dropping markets. Second, firms that drop more markets also see a significant decline in demand in the markets they continue to export to, with prices remaining stable. Third, about 20% of market changes are driven by bilateral exchange rates and local CPI fluctuations. I then develop a multi-country general equilibrium model to examine these patterns and their impact on markups, trade volumes, and welfare. In a bilateral trade war scenario, the model predicts an additional 1-2% drop in aggregate productivity for the involved countries and an additional 8-10% increase for the uninvolved countries, as firms adjust their markets in response to changing competitive conditions.
Winner of the RoWE Young Economists Prize at the 2019 European Trade Study Group (ETSG) Annual Conference
Markets and Markups: A New Empirical Framework and Evidence on Exporters from China
[Online Appendix][Supplementary Material]
Firms that dominate global trade export to multiple countries and frequently change their foreign destinations. We develop a new empirical framework for analysing markup elasticities to the exchange rate in this environment. The framework embodies a new estimator of these elasticities that controls for endogenous market participation and a new classification of products based on Chinese linguistics to proxy for firms' power in local markets. Applying this framework to Chinese customs data, we document significant pricing-to-market for highly differentiated goods. Measured in the importer's currency, the prices of highly differentiated goods are far more stable than those of less differentiated products.
Winner of the Emerald Best Paper Award at the 2018 China Finance Review International Conference
Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports
The renegotiation of a trade agreement introduces uncertainty into the economic environment. We exploit the natural experiment of the Brexit referendum to estimate the impact of uncertainty associated with trade agreement renegotiation. Empirically, we develop measures of the trade policy uncertainty facing firms exporting from the UK to the EU after June 2016. Using the universe of UK export transactions at the firm and product level, we estimate entry (exit) in 2016 would have been 5.0% higher (6.1% lower) if firms exporting from the UK to the EU had not faced increased trade policy uncertainty after June 2016.
Media Coverage: VoxEU; The Economist (2018, 2019); The Financial Times; The Telegraph
The Pro-competitive Effects of Trade Agreements
Journal of International Economics, July 2024
Invoicing and the Dynamics of Pricing-to-Market:
Evidence from UK Export Prices around the Brexit Referendum
Journal of International Economics, March 2022
The Looming Threat of Tariff Hikes: Entry into Exporting under Trade Agreement Renegotiation
AEA: Papers and Proceedings, May 2020
Firm-level Pass Through: A Machine Learning Approach
Understanding how exporters react to exchange rate shocks is important for evaluating international shock transmissions and setting the optimal international monetary policy. Empirical studies have documented huge heterogeneity in the degree to which different firms and products respond to exchange rate shocks. In addition, estimates of exchange rate pass through (ERPT) are time varying and depend on observed and unobserved variables in a nonlinear way. This paper proposes a machine learning algorithm that systematically detects determinants of ERPT and estimates ERPT at the firm-level in a large-scale custom dataset. The accuracy of the algorithm is tested on simulated data from a multi-country version of Atkeson and Burstein (2008). Applying the algorithm to China’s custom data from 2000-2006, this paper estimates the ERPT of China’s exporters and documents new evidence on the nonlinear relationships among market structures, unit value volatility and ERPT.
Global Implications of Multilateral Competition and Pricing-to-Market
The Price Impacts of Trade Agreements
How is Brexit Affecting the Role of Sterling in UK Trade?
Pro-competitive Provisions in Deep Trade Agreements
Will ‘Level Playing Field’ Issues Derail the UK-EU Negotiations?
The Sterling Depreciation and UK Price Competitiveness
The Impact of Brexit Uncertainty on UK Exports
A Granular Analysis of the Exposure of UK Exports to EU Tariffs, Quotas and Antidumping under ‘No Deal’