· Can Indeterminacy and Self-Fulfilling Expectations Help Explain International Business Cycles? (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.
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. Accepted by the Canadian Journal of Economics.
The role of trade openness in the transmission of monetary shocks depends on the pass-through elasticity and in the amount of sectoral heterogeneity in price rigidity.
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).