Essays in International Macroeconomics

Abstract

This dissertation consists of three independent chapters studying the impact of fiscal policies and exchange rate dynamics on local economies. All chapters present international evidence and theoretical methods showing the importance of price setting decisions to evaluate macroeconomic policies.

In the first chapter I estimate the cash flow effects of currency mismatches generated by foreign-priced operations of French manufacturers. I show that the short-term effect of an exchange rate depreciation is to change the border value of foreign-priced operations, rather than the transacted quantity. Consequently, currency fluctuations generate short-term cash flow fluctuations that affect real investment and employment decisions of financially constrained firms.

In the second chapter, my co-authors and I study the dynamic macroeconomic effects of border adjustment taxes. We show that, while standard economic theory predicts that border adjustment taxes will have no effect on the real economy, this prediction does not hold when we consider that most US trade and US liabilities are denominated in dollars. We predict that the introduction of a border adjusted corporate tax in the US would reduce trade and result in a net transfer to the rest of the world.

In the third chapter, my co-authors and I use a rich amount of international variation in historical austerity measures to understand what kind of consolidations are least economically harmful. We show that a standard New Keynesian model robustly match the fact that tax-based consolidations are more harmful than spending-based consolidations when fiscal shocks are persistent.