· Can Indeterminacy and Self-Fulfilling Expectations Solve the International Macro Puzzles? (Joint with Stephen McKnight, El Colegio de México)
A combination of productivity and sunspot shocks can help resolve the major puzzles of international business cycles, but not the Backus-Smith puzzle.
I discuss the importance of controlling for both the pass-through elasticity and the degree of price rigidity in an empirical investigations of the sectoral effects of monetary policy. Accepted by the Journal of Macroeconomics.
· Modelling the Sectoral Allocation of Labour in Open Economy Models
This paper presents an open economy model with tradeable and nontradeable sectors in which individuals cannot supply labour in both sectors at the same time. The utility function of the stand-in household has both margins of labour supply, hours and participation rates, and it is compatible with expected utility theory. I explain why the elasticity of labour supply is infinite, and I examine the empirical performance of the model. Canadian Journal of Economics.
In the US tradeable output is more volatile than nontradeable output. If we use a "new open economy" model to understand why, we find that it is so because tradeable output is more responsive to domestic monetary shocks.
Much shorter version published as: Povoledo, Laura. A Note on the Volatility of the Tradeable and Nontradeable Sectors. Macroeconomic Dynamics (2013).
· Can producer currency pricing models generate volatile real exchange rates?
Low elasticities of substitution can replace full local currency pricing as a way to generate real exchange rates that are as volatile as in the data. Economics Letters (2012).
· Does Asia’s choice of exchange rate regime affect Europe’s exposure to US shocks? Joint with Bojan Markovic (National Bank of Serbia)
Using a three-country model, we find that if Asia decides to peg her exchange rate to the dollar, the impact of US shocks on European output and inflation is likely to increase. This suggests that the shock-insulation property of floating exchange rates extends beyond the two country whose currency is free to move. Economic Issues (2011).