Found 52 article(s) for author 'Gita Gopinath'

Dollar Dominance in Trade: Facts and Implications

Dollar Dominance in Trade: Facts and Implications. Gita Gopinath, 2019, Opinion, “It is an honor to give the EXIM Bank of India’s 33rd Commencement Day Lecture. I would like to especially thank the Managing Director, Mr. David Rasquinha, for inviting me to speak at this special event.  Given that this is the EXIM Bank lecture it feels appropriate to talk about international trade. The remarkable growth in international trade and finance over the last four decades has changed economics and politics. The global financial crisis over the last decade has challenged several of the existing paradigms in economics. In my lecture today I will speak about one such long-standing paradigm in international economics, the so-called “Mundell-Fleming paradigm,”and the recent evidence that questions the general validity of this framework. This new evidence arises from work I have done over the last decade with co-authors that has led us to push for a new paradigm that we call the “Dominant Currency Paradigm.”Link

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Cash and the Economy: Evidence from India’s Demonetization

Cash and the Economy: Evidence from India’s Demonetization. Gita Gopinath, Gabriel Chodorow-Reich, December 13, 2018, Paper, “We analyze a unique episode in the history of monetary economics, the 2016 Indian “demonetization.” This policy made 86% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: a data set containing the geographic distribution of demonetized and new notes for causal inference; nightlights data and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Districts experiencing more severe demonetization had relative reductions in economic activity, faster adoption of alternative payment technologies, and lower bank credit growth. The cross-sectional responses cumulate to a contraction in employment and nightlights-based output due to demonetization of 2 p.p. and of bank credit of 2 p.p. in 2016Q4 relative to their counterfactual paths, effects which dissipate over the next few months. We use our model to show these cumulated effects are a lower bound for the aggregate effects of demonetization. We conclude that unlike in the cashless limit of new-Keynesian models, in modern India cash serves an essential role in facilitating economic activity.Link

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Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings

Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings. Gita Gopinath, Jeremy Stein, May 2018, Paper, “We develop a model that shows how the currency denomination of a country’s imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank’s reserve holdings. The link between the dollar’s role in bank funding and its role as a central bank reserve currency is stronger when the country’s fiscal capacity is limited, and when exchange rates are volatile. In the data, there is a pronounced cross-country relationship between the fraction of imports that are dollar invoiced, and the fraction of central-bank foreign-exchange reserves that are held in dollars.Link

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China’s strong retaliation to Trump’s tariffs could trigger global trade war

China’s strong retaliation to Trump’s tariffs could trigger global trade war. Gita Gopinath, March 24, 2018, Video, “President Donald Trump’s decision to impose tariffs is worrying — that’s the word coming in from Economics Professor at Harvard and Financial Advisor to Kerala Government, Gita Gopinath. Speaking exclusively to Shereen Bhan, Gita said that we may be at the brink of a trade war if China strongly retaliates against Trump’s decision. She added that India will also be affected with this tariff imposition in long term.Link

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Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings

Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings. Gita Gopinath, Jeremy Stein, 2018, Paper, “In recent work (Gopinath and Stein (2017)) we explore how a currency like the dollar can become entrenched as a dominant global currency, focusing on the two-way feedback between trade invoicing and banking structure. The basic idea is that when a larger share of a country’s imports are invoiced in dollars, its citizens have a greater demand for dollar-denominated safe claims.Link

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Banking, Trade, and the Making of a Dominant Currency

Banking, Trade, and the Making of a Dominant Currency. Gita Gopinath, Jeremy Stein, November 11, 2017, Paper, “We explore the interplay between trade invoicing patterns and the pricing of safe assets in different currencies. Our theory highlights the following points: 1) a currency’s role as a unit of account for invoicing decisions is complementary to its role as a safe store of value; 2) this complementarity can lead to the emergence of a single dominant currency in trade invoicing and global banking, even when multiple large candidate countries share similar economic fundamentals; 3) firms in emerging-market countries endogenously take on currency mismatches by borrowing in the dominant currency; 4) the expected return on dominantcurrency safe assets is lower than that on similarly safe assets denominated in other currencies, thereby bestowing an “exorbitant privilege” on the dominant currency. the theory thus provides a unified explanation for why a dominant currency is so heavily used in both trade invoicing and in global finance.Link

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Global Trade and the Dollar

Global Trade and the Dollar. Gita Gopinath, November 2017, Paper, “We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) the dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral noncommodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) Œe strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation.” Link

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Rethinking Macroeconomic Policy: International Economy Issues

Rethinking Macroeconomic Policy: International Economy Issues. Gita Gopinath, October 10, 2017, Paper, “In this paper I make the following ten remarks on the topics of exchange rate policy, capital flow management, protectionism, and global cooperation: 1) The gains to exchange rate flexibility are worse than you think; 2) The ‘Trilemma’ lives on; 3) The U.S. dollar exchange rate drives global trade prices and volumes; 4) Gross capital flows matter as much as net flows, and global banks have internationalized U.S. monetary policy. 5) Emerging markets tilt away from foreign currency to local currency debt reduces their exposure to global risk factors; 6) Low interest rate environments can lead to misallocation of resources and lower productivity; 7) The relationship between global imbalances, reserve accumulation, and currency manipulation is not well identified. 8) Uniform border taxes are not neutral; 9) Trade is not the main driver of earnings inequality, but at the same time policy has failed to address its redistributive consequences. 10) Global coordination of financial regulation is essential alongside country level macroprudential polices. Reserve accumulation and currency swap lines do not substitute for the lender of last resort role of the IMF.” Link

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The Reallocation Myth

The Reallocation Myth. Gita Gopinath, September 8, 2017, Paper, “This is a very interesting and provocative paper on an important topic. Growth in advanced economies of the world have settled into a tepid pace of 1%-2% a year associated with a decline in total factor and labor productivity over the past decade. It is imperative to understand the sources of low productivity growth and to evaluate what policies can rejuvenate growth. The potential growth rate of the economy has implications for measures of output gaps and real rates and therefore has implications for monetary policy. Chang-Tai and Pete in their ambitious paper take up this challenging task for the U.S. economy.Link

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