Department of Economics
Ecole Polytechnique Federale de Lausanne
Institutional Affiliation: Ecole Polytechnique Federale de Lausanne
NBER Working Papers and Publications
|July 2019||Regional Effects of Exchange Rate Fluctuations|
with Christopher L. House, Linda L. Tesar: w26071
We exploit differences across U.S. states in terms of their exposure to trade to study the effects of changes in the exchange rate on economic activity at the business cycle frequency. We find that a depreciation in the state-specific trade-weighted real exchange rate is associated with an increase in exports, a decline in unemployment and an increase in hours worked. The effect is particularly strong in periods of economic slack. We develop a multi-region model with inter-state trade and labor flows and calibrate it to match the state-level orientation of exports and the extent of labor migration and trade between states. The model replicates the relationship between exchange rates and unemployment. Counterfactuals show that the high degree of interstate trade plays a dominant role in tra...
|December 2018||Quantifying the Benefits of Labor Mobility in a Currency Union|
with Christopher L. House, Linda L. Tesar: w25347
Unemployment differentials are bigger in Europe than in the United States. Migration responds to unemployment differentials, though the response is smaller in Europe. Mundell (1961) argued that factor mobility is a precondition for a successful currency union. We use a multi-country DSGE model with cross-border migration and search frictions to quantify the benefits of increased labor mobility in Europe and compare this outcome to a case of fully flexible exchange rates. Labor mobility and flexible exchange rates both work to reduce unemployment and per capita GDP differentials across countries provided that monetary policy is sufficiently responsive to national output.
|February 2017||Austerity in the Aftermath of the Great Recession|
with Christopher L. House, Linda L. Tesar: w23147
We examine austerity in advanced economies since the Great Recession. Austerity shocks are reductions in government purchases that exceed reduced-form forecasts. Austerity shocks are statistically associated with lower real GDP, lower inflation and higher net exports. We estimate a cross-sectional multiplier of roughly 2. A multi-country DSGE model calibrated to 29 advanced economies generates a multiplier consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity shocks were sufficiently contractionary that debt-to-GDP ratios in some European countries increased as a consequence of endogenous reductions in GDP and tax revenue.
Published: Christopher L. House & Christian Proebsting & Linda L. Tesar, 2019. "Austerity in the Aftermath of the Great Recession," Journal of Monetary Economics, .