Institutional Affiliation: University of Texas at Austin
|The Long and Short (Run) of Trade Elasticities|
with , : w27064
We propose a novel approach to estimate the trade elasticity at various horizons. When large countries change Most Favored Nation (MFN) tariffs, small trading partners that are not in a preferential trade agreement experience plausibly exogenous tariff changes. The differential growth rates of imports from these countries relative to a control group — countries not subject to the MFN tariff scheme — can be used to identify the trade elasticity. We build a panel dataset combining information on product-level tariffs and trade flows covering 1995-2017, and estimate the trade elasticity at short and long horizons using local projections (Jordà, 2005). Our main findings are that the elasticity of tariff-exclusive trade flows in the year following the exogenous tariff change is about –0.7, and ...
|Convex Supply Curves|
with : w26829
We provide evidence that industries' supply curves are convex. To guide our empirical analysis, we develop a putty-clay model in which capacity constraints at the plant level generate convex supply curves at the industry level. The model's key insight is that an industry's capacity utilization rate is a sufficient statistic for the slope of its supply curve. Using data on capacity utilization and three different instruments, we estimate the supply curve and find robust evidence for convexity. Supply curves are essentially flat at low levels of capacity utilization but increasing at higher levels. Further, industries with low initial capacity utilization rates expand production twice as much after demand shocks as industries that produce close to their capacity limit. The nonlinearity we id...
|Multinationals, Offshoring and the Decline of U.S. Manufacturing|
with , : w25824
We provide new facts about the role of multinationals in the decline in U.S. manufacturing employment between 1993-2011, using a novel microdata panel with firm-level ownership and trade information. Multinational-owned establishments displayed lower employment growth than a narrow control group and accounted for 41% of the aggregate manufacturing employment decline. Further, newly multinational establishments in the U.S. experienced job losses, while their parent firms increased input imports from abroad. We develop a model that rationalizes this behavior and bound a key elasticity with our microdata. The estimates imply that a reduction in the costs of foreign sourcing leads firms to increase imports of intermediates and to reduce U.S. manufacturing employment. Our findings suggest that ...
|Optimal Taylor Rules in New Keynesian Models|
with : w20237
We analyze the optimal Taylor rule in a standard New Keynesian model. If the central bank can observe the output gap and the inflation rate without error, then it is typically optimal to respond infinitely strongly to observed deviations from the central bank's targets. If it observes inflation and the output gap with error, the central bank will temper its responses to observed deviations so as not to impart unnecessary volatility to the economy. If the Taylor rule is expressed in terms of estimated output and inflation then it is optimal to respond infinitely strongly to estimated deviations from the targets. Because filtered estimates are based on current and past observations, such Taylor rules appear to have an interest smoothing component. Under such a Taylor rule, if the central ba...