Essays on International Economics and Macroeconomics

Abstract

This dissertation consists of three essays on international economics and macroeconomics. Its primary focus is on understanding how heterogeneous firms operating in global markets determine their prices optimally, react to foreign shocks such as exchange rate movements, and how they behave as buyers of inputs in international markets. Additionally, the dissertation highlights the importance of firms’ financial decisions, not only concerning domestic banks but also by allowing for trade credit to their foreign buyers. Each essay explores one of these aspects in a specific setting. Chapter I investigates the market power of large buyers in international markets during exchange rate shocks; Chapter II examines the trade credit effect on export prices; and Chapter III explores how a credit supply shock in foreign currency affects borrowing and import decisions. In Chapter I, titled “Buyer Market Power and Exchange Rate Pass-through” I explore the effect of buyer market power on the exchange rate pass-through. Using a dataset from Colombia that includes the universe of Colombian exporters, I demonstrate a high degree of concentration of sales in larger foreign buyers, granting them market power. As a result, these large buyers can negotiate prices below the marginal productivity of the input, resulting in a markdown or discount. Furthermore, in the event of an exchange rate shock, prices for large buyers show less responsiveness compared to prices for small buyers in the seller’s currency. Lastly, I examine a counterfactual scenario where I eliminate buyer market power; if there were no buyer market power, seller revenues would increase, but they would also become more volatile. In Chapter II, titled “Bank Loans, Trade Credit, and Export Prices: Evidence from Exchange Rate Shocks in China” George Cui, Xiasheng Guo, and I explore how the effects of exchange rate shocks on international prices (i.e., exchange rate pass-through) vary with trade credit. Using a Chinese dataset containing information on export prices of Chinese firms, as well as their bank statements, we examine the effects of trade credit. We find that firms that issue trade credit have higher and less volatile prices. To understand the mechanism behind these patterns, we introduce an open economy model of monopolistic competition in international markets with heterogeneous firms and domestic financial markets. The model reveals a trade credit premium channel: exchange rate shocks affect domestic banks’ expectations of exporters’ profits, which, in turn, impacts the interest rates (financial costs) offered to exporters and, consequently, the trade credit interest rate included in the exporting price. Finally, in Chapter III, titled “From Tax Amnesty to Bank Credit: The Transmission of Large Scale Asset Repatriation through Bank-to-Firm Relationships” Federico Bernini, Paula Donaldson, Ezequiel Garcia Lembergman, and I examine the firm-level effects of a foreign currency credit supply shock. We leverage the large and unprecedented inflow of dollar deposits that resulted from a tax amnesty in Argentina as a source of plausibly exogenous variation in bank-level funding. Our findings indicate that banks more exposed to the shock increased their supply of both dollar and peso loans compared to less exposed banks. The improved access to credit had a positive impact on firm imports, both on the intensive and extensive margins and employment. These results suggest that the tax amnesty had real macroeconomic effects by alleviating dollar funding constraints of firms in the private sector.