There is considerable debate over whether international trade has contributed to the declining economic fortunes of less skilled workers. One issue that has become lost in the current discussion is how firms respond to import competition and how these responses, in turn, are transmitted to the...

Relying upon a standard New Keynesian DSGE, we propose an explanation for two empirical findings in the international finance literature. First, the unbiasedness hypothesis – the proposition that expost exchange rate depreciation matches interest differentials – is rejected much more...

Using the "trilemma indexes" developed by Aizenman et al. (2008) that measure the extent of achievement in each of the three policy goals in the trilemma--monetary independence, exchange rate stability, and financial openness--we examine how policy configurations affect macroeconomic...

Uncovered interest parity (UIP) has been almost universally rejected in studies of exchange rate movements, although there is little consensus on why it fails. In contrast to previous studies, which have used relatively short-horizon data, we test UIP using interest rates on longer-maturity...

In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by...

We develop a methodology that intuitively characterizes the choices countries have made with respect to the trilemma during the post Bretton-Woods period. The paper first outlines the new metrics for measuring the degree of exchange rate flexibility, monetary independence, and capital account...

We evaluate the recent evidence for real interest parity, focusing on long-term yields. Examining the data on financial instruments of various maturities across the G7 countries, we find substantial differences in the degree of real interest equalization measured at different horizons. In...

In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any...

The recent literature on quid pro quo foreign direct investment (FDI) suggests that FDI may be induced by the threat of protection, and further, that FDI may be used as an instrument to defuse a protectionist threat. This paper uses a panel data set of 4-digit SIC level observations of Japanese...

We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically...