Publications

2009
Aguiar, Mark, Manuel Amador, and Gita Gopinath. 2009. “Expropriation Dynamics.” American Economic Review 99 (2): 473-479. DOI:10.1257/aer.99.2.473
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2008
Gopinath, Gita, and Roberto Rigobon. 2008. “Sticky Borders.” Quarterly Journal of Economics 123 (2): 531-575. DOI:10.1162/qjec.2008.123.2.531 Abstract

The stickiness and currency of pricing of traded goods play a central role in international macroeconomics; however, empirical evidence on these features is seriously limited. To address this, we use micro data on U.S. import and export prices at the dock for the period 1994–2005 and present four main results: First, the median price duration in the currency of pricing is 10.6 (12.8) months for imports (exports). Second, 90% (97%) of imports (exports) are priced in dollars. Consequently, contrary to standard modeling assumptions, for the United States, there is producer currency pricing in exports and local currency pricing in imports. Third, import price rigidity has increased by ten percentage points, with increasing rigidity in differentiated goods prices. Fourth, even conditioning on a price change, exchange rate pass-through into U.S. import prices is low, at 22%.

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2007
Gopinath, Gita. 2007. “Comment: Marcus Noland, South Korea's Experience with International Capital Flows.” Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, edited by Sebastian Edwards, 525-528. Chicago: University of Chicago Press. Comment: Marcus Noland, South Korea's Experience with International Capital Flows
National Bureau of Economic Research Conference Report, Dec 16-18, 2004.

The topic of capital flows to emerging markets (henceforth EM) poses several questions. There is the question of why capital flows to EM's are so little, as in Lucas (1990), just as there is the concern that capital flows might be ‘too much’ as in Reinhart and Rogoff (2004). The precise costs and benefits to EM's in terms of international risk sharing, volatility of real variables, productivity spillovers, among others, are also points of debate (Aguiar and Gopinath, 2006 and Jeanne and Gourinchas, in press). This book, takes the level of capital flows as given and explores another important set of questions regarding the currency composition and maturity composition of borrowing by EM's—namely, why do EM's borrow mainly in a foreign currency and at short maturities. This book proposes an intriguing answer and an impressive amount of evidence. However, just as with the other questions, the debate remains unsettled and urges the need for further research.

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Book review.

Aguiar, Mark, and Gita Gopinath. 2007. “Emerging Market Business Cycles: The Cycle is the Trend.” Journal of Political Economy 115 (1): 69-102. DOI:10.1086/511283 Abstract

Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and “sudden stops” in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth—rather than transitory fluctuations around a stable trend—are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.

PDF Data used in the paper to compute business cycle statistics_1 Data used in the paper to compute business cycle statistics_2 programs.zip

Matlab code for program and data files attached.

2006

In today’s times, the single most debated question in international policy circles is the fate of the U.S. dollar and the U.S current account. This book is a collection of essays on this debate. The papers were presented at a conference in Washington, D.C., on May 25, 2004, organized by the Institute for International Economics. The main questions that were asked at the time of the conference were the following: (1) How much further does the dollar need to depreciate? (2) Against which currencies does it need to depreciate? The general consensus among the authors is that there is a serious misalignment of key national currencies in the world. The main conclusion is that the dollar needs to decline by an additional 15 percent or so and most of this adjustment needs to take place against Asian currencies. This will require China to revalue its exchange rate against the dollar by around 20 percent.

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Aguiar, Mark, and Gita Gopinath. 2006. “Defaultable Debt, Interest Rates and the Current Account.” Journal of International Economics 69 (1): 64-83. DOI:10.1016/j.jinteco.2005.05.005 Abstract

World capital markets have experienced large scale sovereign defaults on a number of occasions. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. We highlight the role of the stochastic trend in emerging markets, in an otherwise standard model with endogenous default, to match these facts.

PDF Matlab code for programs

Matlab code for programs attached.

Aguiar, Mark, and Gita Gopinath. 2006. “Emerging Market Fluctuations: The Role of Interest Rates and Productivity Shocks.” Tenth Annual Conference on the Central Bank of Chile, "Current Account and External Financing." Santiago, Chile: Central Bank of Chile. Abstract

In this paper we use a quantitative model to explore the potential frictions that distinguish emerging market business cycles from developed small open economies. Following Aguiar and Gopinath (2007) we allow total factor productivity (TFP) to have a stationary and an integrated component. We also allow for shocks to the consumption and investment Euler Equations that operate through the interest rate. These “wedges” represent changes in the intertemporal marginal rate of transformation, which may be due to changes in observed interest rates, unobserved borrowing constraints, or other financial frictions. We estimate the model using data from Mexico and Canada. We show that interest rate shocks orthogonal to domestic TFP fail to explain the behavior of emerging markets. We then allow for interest rates to respond to/co-vary with productivity shocks. We find that emerging market business cycles appear to be driven by large shocks to trend income combined with relatively small transitory shocks that co-vary with the interest rate.

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2005
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Aguiar, Mark, and Gita Gopinath. 2005. “Fire-Sale Foreign Direct Investment and Liquidity Crises.” Review of Economics and Statistics 87 (3): 439-452. DOI:10.1162/0034653054638319 Abstract

In placing capital market imperfections at the center of emerging market crises, the theoretical literature has associated a liquidity crisis with low foreign investment and the exit of investors from the crisis economy. However, a liquidity crisis is equally consistent with an inflow of foreign capital in the form of mergers and acquisitions (M&A). To support this hypothesis, we use a firm-level dataset to show that foreign acquisitions increased by 91% in East Asia between 1996 and 1998, while intra-national merger activity declined. Firm liquidity plays a significant and sizeable role in explaining both the increase in foreign acquisitions and the decline in the price of acquisitions during the crisis. This contrasts with the role of liquidity in non-crisis years and in non-crisis economies in the region. This effect is also most prominent in the tradable sector. Quantitatively, the observed decline in liquidity can explain 25% of the increase in foreign acquisition activity in the tradable sectors. The nature of M&A activity supports liquidity-based explanations of the East Asian crisis and provides an explanation for the puzzling stability of FDI inflows during the crises.

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2004
Gopinath, Gita. 2004. “Lending Booms, Sharp Reversals and Real Exchange Rate Dynamics.” Journal of International Economics 62 (1): 1-23. DOI:10.1016/j.jinteco.2003.08.002 Abstract

Emerging markets in the 1990s experienced periods of booms followed by collapses in gross domestic product, consumption, traded and non-traded sector output and real exchange rate movements alongside unprecedented movements in foreign investor participation in these economies. An important feature of these episodes is the asymmetry in the pattern of booms and collapses. We introduce a natural search friction into the foreign investment decision in a small open economy and demonstrate that this can generate the asymmetry observed in the data. The magnitude of the reversals predicted by the model can be quantitatively large and empirically relevant.

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