Showing 1 - 4 of 4 Items

Date: 2012-09-01

Creator: Yao Tang, Ke Pang

Access: Open access

We compare the welfare of different combinations of monetary and currency policies in an open-economy macroeconomic model that incorporates two important features of many small economies: a high level of vertical international trade and a prevalent use of a large trade partner's currency as the invoicing currency for both imports and exports. In this environment, a small economy prefers a fixed exchange rate regime over a flexible regime, while the larger economy prefers a flexible exchange rate regime. There are two main causes underlying our results. First, in the presence of sticky prices, relative prices adjust through changes in the exchange rate. Multiple stages of production and trade make it more difficult for one exchange rate to balance the whole economy by adjusting several relative prices throughout the vertical chain of production and trade. Namely, there is a trade-off between delivering an efficient relative price between home and foreign final goods and delivering an efficient relative price between home and foreign intermediate goods. Second, because the small economy uses the larger economy's currency in trade, it faces a high degree of exchange rate pass-through under a flexible regime and hence suffers from the lack of efficient relative prices in vertical trade. The larger economy, however, does not face this problem because its level of exchange rate pass-through is low.

Date: 2013-05-07

Creator: Yao Tang, Haifang Huang

Access: Open access

We estimate the effects of real exchange rate movements on employment in US cities between 2003 and 2010. We explore the differences in the composition of local industries to construct city-specific changes in exchange rates and estimate their effects on local employment in manufacturing industries and in nonmanufacturing industries. Controlling for year and city fixed effects, we find that a depreciation of the US dollar increased local employment in the manufacturing industries, our proxy for the tradable sector. The depreciation also increased employment in the nonmanufacturing industries, the nontradable sector. Furthermore, the effects on nonmanufacturing employment were stronger in cities that had a higher fraction of manufacturing employment, indicating the exchange rate movements’ indirect effects through the manufacturing industries. We also consider an alternative definition of the tradable sector that is broadened to include five service industries. The findings are similar.

Date: 2013-10-28

Creator: Yao Tang, Yoshinori Kurokawa, Jiaren Pang

Access: Open access

We construct a dynamic Ricardian model of trade with money and nominal exchange rate. The model implies that the nominal wages of the trading countries are more likely to exhibit stronger positive comovements when the countries fix their bilateral exchange rates. Panel regression results based on data from OECD countries from 1973 to 2012 suggest that countries in the European Monetary Union (EMU) experienced stronger positive wage comovements with their main trade partners. When we restrict the regression to the subsample of the EMU countries, we find a significant increase in wage comovements after these countries joined the EMU in 1999 compared to the pre-euro era. In comparison, when the sample is restricted to the non-EMU countries, we find no evidence that non-currency union pegs affected the wage comovements.

Date: 2013-06-05

Creator: Yao Tang, Haifang Huang, Ke Pang

Access: Open access

Under the flexible exchange rate regime, the Canadian economy is constantly affected by fluctuations in exchange rates. This paper focuses on employment in Canada. We find that appreciations of the Canadian dollar have significant effects on employment in manufacturing industries; such effects are mostly associated with the export-weighted exchange rate and not the import-weighted exchange rate. The export-weighted exchange rate elasticity of employment is -0.52. However, we also find that exchange rate fluctuations have little impact on Canada’s nonmanufacturing employment. Because the manufacturing sector accounts for only about 10% of the employment in Canada, the overall employment effect of exchange rates is small. In addition, we assess the potential employment impact of a boom in the global commodity market, which often leads to appreciations of the Canadian dollar. We find that a 12.21% increase in commodity prices (one standard deviation in the 1994-2007 data) reduces Canada’s manufacturing employment by 0.98%, less than 0.1% of the total industrial employment.