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Open Access Publications from the University of California

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The UCSC Economics Department is ranked highly in research productivity. The department’s research excellence is focused in three broadly overlapping areas and six specific fields: (1) international economics (international finance, international trade and development), (2) macroeconomics (macro/money and international finance), and (3) empirical microeconomics (public-labor economics, experimental/behavioral economics, international trade, and micro development). These areas remain central to the department’s strategic vision and form the base for our Ph.D. program. Unifying all of the research fields and Ph.D. training is the emphasis on the use of cutting-edge empirical methodology beyond just econometrics. This includes the common use of randomized control experiments, lab experiments, quasi-experimental approaches, computational and simulation methods, big data techniques, and new and innovative administrative data in our research.

Department of Economics, UCSC

There are 271 publications in this collection, published between 2003 and 2016.
Working Paper Series (196)

International reserves and swap lines: substitutes or complements?

Developing Asia experienced a sharp surge in foreign currency reserves prior to the 2008-9 crisis.The global crisis has been associated with an unprecedented rise of swap agreements betweencentral banks of larger economies and their counterparts in smaller economies. We explorewhether such swap lines can reduce the need for reserve accumulation. The evidence suggeststhat there is only a limited scope for swaps to substitute for reserves. The selectivity of the swaplines indicates that only countries with significant trade and financial linkages can expect accessto such ad hoc arrangements, on a case by case basis. Moral hazard concerns suggest that theapplicability of these arrangements will remain limited. However, deepening swap agreementsand regional reserve pooling arrangements may weaken the precautionary motive for reserveaccumulation.

A Gravity View of Exchange Rate Disconnect

The empirical “gravity” equation is extremely successful in explaining bilateral trade. This paper shows how a multi-country model of specialization and costly trade (i.e. a microfounded gravity model) can be applied to explain empirical exchange rate puzzles. One such puzzle is the fact that nominal exchange rates are enormously volatile, but that this volatility does not appear to affect inflation. The gravity model is very successful in explaining this puzzle. In a sample of 25 OECD countries in the post- Bretton Woods period, the gravity prediction of inflation substantially outperforms the purchasing power parity prediction. The gravity prediction matches the volatility of actual inflation, and tracks its path closely. The superior performance of the gravity prediction is explained primarily by the fact that it takes account of the interaction of specialization with home bias. The stability of inflation in very open economies is explained in addition by the fact that the size of bilateral trade is negatively correlated with bilateral exchange rate volatility.

Trade Dynamics in the East Asian Miracle: A Time Series Analysis of U.S.-East Asia Commodity Trade, 1962-1992

We examine the composition of bilateral trade between the United States and eight Asian Pacific economies from 1962 to 1992. Two complementary time series analyses of individual commodities at the SITC four-digit level indicate that significant changes occurred in trade composition during this period. We use a measure of normalized trade balances, developed by Gagnon and Rose (1995). For the eight bilateral trade relationships, commodities representing from fifty to seventy percent of 1992 dollar trade have shown statistically significant changes in the magnitude and, in some cases, in the direction of normalized trade balances, over the thirty-year period. Results support the conclusion that changes in trade patterns in both low-tech industries, such as textiles and clothing, and more high-tech industries, such as electronic parts and electronic goods, were important in the development of the East Asian economies.

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