UCLA

In this dissertation, I present three essays on International Economics that investigate the impact of heterogeneity on the transmission of foreign shocks. The dissertation consists of three chapters. In Chapters 1 and 2, I collaborate with Brian Pustilnik to explore how firms’ use of supply contracts can influence the propagation of commodity price shocks to aggregate variables. Specifically, I examine purchase obligations, which are contracts that entail fixed prices for the future delivery of goods. In Chapter 1, I rely a novel dataset to highlight two empirical findings. Firstly, I show that firms utilizing these contracts experience a substantial reduction in exposure to commodity price risk, with estimates suggesting adecrease of approximately 27% compared to non-users. Secondly, I observe that sector output and labor compensation exhibit a weaker negative correlation with commodity prices when firms engage in larger contracts. Moving on to Chapter 2, I evaluate the overall quantitative significance of these contracts by introducing and calibrating a tractable general equilibrium model. By constructing a counterfactual scenario where firms are unable to trade these contracts, I assess the contribution of purchase obligations in mitigating the aggregate transmission of commodity price shocks. The results demonstrate that when firms engage in purchase obligations, the relative response of real consumption to a 10% commodity price shock is reduced by approximately 4%.

Chapter 3 shifts the focus to consumer heterogeneity and nominal rigidities. Specifically, I investigate the influence of consumer access to financial markets and price stickiness from the firm’s perspective. These sources of heterogeneity can significantly alter the propagation of shocks and policy changes. The chapter provides a comprehensive survey of the current literature and explores the effects of policy changes using a stylized model. I examine the impact of nominal depreciation and wealth transfers. The findings reveal that currency depreciation has an expansionary effect, although the lack of access to financial markets may dampen its impact. On the other hand, wealth transfers reduce income inequality but could potentially trigger an economic recession when consumers benefiting from the transfer supply less labor.