My reasearch focuses on the role of country size heterogeneity on macroeconomic interactions within the Euro Area. I incorporate non-homothetic preferences and pricing-to-market into a two-country general equilibrium framework to analyze the relationship between variable elasticities of demand across countries and macroeconomic fluctuations.
Job Market Paper: Pricing to Market, Home Bias in Consumption and the Current Account in the Euro Area
Abstract: This study examines the effects of home bias in consumption on current account volatility within the euro area for the sample period 1996-2016. Incorporating non-homothetic preferences into a two-country general equilibrium model of current account dynamics yields pricing-to-market based upon income per capita. This specification provides a channel to measure the influence of home bias in consumption on current account volatility. The model is calibrated with productivity shocks to replicate asymmetric wealth effects among creditor and debtor countries based upon long-run net foreign asset positions. A sensitivity analysis shows that as the degree of home bias in consumption grows, the response of the current account to shocks to productivity is dampened. This result holds for both creditors and debtors in the euro area.
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Working Paper: Real Exchange Rate Misalignments and Non-Homothetic Preferences (joint with Kanda Naknoi) Revisions requested by Economics Letters
Abstract: We examine real exchange rate misalignment under a non-homothetic preferences specication in a two-country general equilibrium model with productivity shocks and demand shocks. The predicted impact of shocks on real exchange rate misalignment is qualitatively the same as that under a CES preferences specication, but CES preferences quantitatively yield a larger scale of misalignment than non-homothetic preferences. However, the quantitative difference between the two approaches diminishes when the intertemporal elasticity of substitution decreases.
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