UC Berkeley

Traditionally, empirical studies in international macroeconomics have been subject to significant criticism due to the low frequency of the data and the limited number of observational units—typically a small group of countries. Nevertheless, the past decade has seen the development of macro econometric tools and data that allow us to better understand the landscape of emerging economies and to test the theories that are commonly used to guide policy decisions. In this dissertation, I establish new stylized facts about emerging economies and use some of the most recent developments in macroeconomics to test theoretical arguments that may explain the empirical patterns I document. The three chapters described below therefore contribute to the ongoing process of the Data Revolution in the field of international macroeconomics.Chapter 1 of this dissertation documents an Emerging Market Great Moderation, characterized by a roughly 40\% decline in output volatility across 92 emerging economies since the 1980s, with most of the reduction occurring after the 1990s and bringing volatility closer to advanced-economy levels. The decline is broad-based—visible across countries, quantiles, and all components of GDP—yet key features of emerging market business cycles persist: consumption remains more volatile than income and the trade balance remains countercyclical. To reconcile these facts, the chapter revisits canonical models in the spirit of \cite{AguiarGopinath2007}, showing that unchanged business cycle properties can coexist with lower overall volatility if the share of fluctuations driven by permanent shocks remains high. The chapter develops a flexible Bayesian unobserved-components approach to decompose output into permanent and transitory shocks using output data alone, allowing for time-varying volatility. The results attribute about 80\% of fluctuations in emerging markets to permanent shocks and show that both permanent and transitory volatility have declined proportionally over time. This moderation yields sizable welfare gains: households would be willing to forgo substantially more consumption to avoid these fluctuations than standard estimates suggest, with gains exceeding 10\% of consumption in some countries. The evidence points to reduced domestic and regional volatility—likely linked to improved institutions—as the main driver.Chapter 2 studies whether and why central banks around the world respond to U.S. monetary policy decisions, focusing on differences between emerging market economies (EMEs) and advanced economies (AEs). Using a newly constructed dataset of more than 9,500 monetary policy meetings across 59 central banks, the chapter shows that EME central banks systematically move their policy rates in the same direction as the Federal Reserve, while AE central banks do not. A key contribution is the use of meeting-level data, which reveals that central bank meetings are often strategically timed shortly after FOMC announcements --an empirical feature that is obscured in standard monthly datasets and leads to attenuation bias in conventional estimates. Quantitatively, a 100 basis points Fed tightening leads EMEs to raise policy rates by about 50 basis points at their next meeting, with persistent effects over time. The chapter then shows that this heterogeneity is explained by differences in how U.S. monetary shocks affect inflation: in EMEs, such shocks raise inflation expectations and realized inflation, whereas effects are muted in AEs. These patterns are consistent with a mechanism in which exchange rate depreciations increase firms’ marginal costs in EMEs—due to dollar invoicing and dollar-denominated debt—leading inflation-targeting central banks to tighten policy. A three-bloc open-economy New Keynesian model with multiple currency pricing and partial dollarization rationalizes these findings and highlights the central role of exchange-rate-driven cost pressures.This chapter studies how individuals’ lifetime macroeconomic experiences shape the decision to save in U.S. dollars in emerging economies. Focusing on Costa Rica as a case study, it documents two key facts: older cohorts hold a larger share of their financial wealth in dollars, and these cohorts have been exposed to higher inflation and exchange rate depreciation over their lifetimes. The chapter hypothesizes that such macroeconomic experiences are central determinants of dollarization at the individual level. To test this, it estimates cohort effects in dollar-saving behavior, addressing the age–period–cohort identification problem by flexibly controlling for macroeconomic conditions. The results show that individuals more exposed to inflation and depreciation systematically allocate a greater share of their savings to dollars, even after accounting for income, wealth, and other demographic characteristics. To interpret these findings, the chapter develops a model of portfolio choice with subjective beliefs, in which individuals form expectations about inflation and depreciation based on past experiences. The model predicts that dollarization increases with expected depreciation, the relative volatility of inflation, and its correlation with depreciation—predictions that are supported by the data. Overall, the paper highlights an experience-based mechanism behind financial dollarization, whereby exposure to macroeconomic instability leaves persistent imprints on individual saving behavior.