Doireann Fitzgerald

Doireann Fitzgerald

Senior Research Economist

doireann.fitzgerald@gmail.com
CV
Personal Website

Interests:
International macroeconomics
International trade

Doireann Fitzgerald joined the Federal Reserve Bank of Minneapolis as a senior economist in 2013. She has also been an assistant professor at Stanford University and the University of California–Santa Cruz. Doireann received her B.A. and M.A. in economics from University College Dublin and her Ph.D. in economics from Harvard University. She has been a visiting assistant professor at Harvard (2005–6) and a Fellow in the International Economics Section at Princeton University (2010–11). Her work has appeared in the Journal of International Economics, the Journal of Monetary Economics, and the American Economic Review. Her main area of interest is international economics.

Comment on: “After the tide: Commodity Currencies and Global Trade” by Robert Ready, Nikolai Roussanov and Colin Ward

The “carry trade” describes the trade where investors borrow in low interest currencies and lend in high interest rate currencies. A recent literature (see Lustig et al., 2011) notes that high interest rate currencies tend to depreciate when there are negative global shocks, and hence attributes profits in good times to compensation for the negative hedge. However this leaves open the question of why it is that high interest rate currencies depreciate in bad times. Ready et al. (2016) address this question. They show that developed countries that export commodities on net tend to have high interest rates, while countries that import commodities on net exhibit the reverse pattern. Based on this observation, they develop a model of “commodity currencies” that can rationalize the carry trade. The mechanism in their model relies on a particular behavior of trade costs. In this paper, Ready et al. (hereafter RRW) calibrate a version of this model, and examine the degree to which it can match carry trade losses in the Great Recession.

Pricing-to-Market: Evidence From Plant-Level Prices

We use micro data on Irish producer prices to provide clean evidence on pricing-to-market across a broad range of manufacturing sectors. We have monthly observations on prices charged by the same plant for the same product to buyers in Ireland and the UK, two markets segmented by variable exchange rates. Assuming that relative marginal cost is constant across markets within a plant and a product, this allows us to observe the behaviour of the markup in the UK market relative to the home market. To identify pricing-to-market that goes beyond what is mechanically due to price stickiness, we condition on episodes where prices change. When prices are invoiced in local currency, conditional on prices changing, the ratio of the markup in the foreign market to the markup in the home market increases one-for-one with depreciations of home against foreign currency and decreases one-for-one with appreciations of home against foreign currency, a very particular form of pricing-to-market.

Trade Costs, Asset Market Frictions, and Risk Sharing

I use bilateral import data to test for and quantify the importance of trade costs and asset market frictions in explaining the failure of perfect international consumption risk sharing. I find that while frictions in international asset markets significantly impede optimal consumption risk sharing between developed and developing countries over the period 1970-2000, developed countries are close to optimal risk sharing with each other. Trade costs, in contrast, significantly impede risk sharing for all countries.

Can Trade Costs Explain why Exchange Rate Volatility does not Feed into Consumer Prices?

If countries specialize in imperfectly substitutable goods, trade costs increase the share of expenditure devoted to domestic output, reducing the exposure of consumer price inflation to exchange rate changes. I present a multi-country flexible-price model where expenditure shares are inversely related to trade costs through a gravity equation. In this setting, consumer price inflation can be approximated as an expenditure-share-weighted average of the contributions to inflation from all countries. I use data from 24 OECD countries, 1970–2003, to estimate a structural gravity model. I combine the fitted expenditure shares from the estimation with actual data on exchange rates to construct predictions of inflation. The behavior of these predictions indicates that trade costs can explain both qualitatively and quantitatively the failure of exchange rate volatility to feed into inflation.

Specialization, Factor Accumulation and Development

We estimate the effect of factor proportions on the pattern of manufacturing specialization in a cross-section of OECD countries, taking into account that factor accumulation responds to productivity. We show that the failure to control for productivity differences produces biased estimates. Our model explains 2/3 of the observed differences in the pattern of specialization between the poorest and richest OECD countries. However, because factor proportions and the pattern of specialization co-move in the development process, their strong empirical relationship is not sufficient to determine whether specialization is driven by factor proportions, or by other mechanisms also correlated with level of development.

How Exporters Grow

We document how export quantities and prices evolve after entry to a market. Controlling for marginal cost, and taking account of selection on idiosyncratic demand, there are economically and statistically significant dynamics of quantities, but no dynamics of prices. To match these facts, we estimate a model where firms invest in customer base through non-price actions (e.g. marketing and advertising), and learn gradually about their idiosyncratic demand. The model matches quantity, price and exit moments. Parameter estimates imply costs of adjusting investment in customer base, and slow learning about demand, both of which generate sluggish responses of sales to shocks.

Exporters and Shocks: Dissecting the International Elasticity Puzzle

Aggregate exports are not very responsive to real exchange rates, though they respond strongly to trade liberalizations, a fact sometimes referred to as the International Elasticity Puzzle. We use micro data on firms and exports for Ireland to dissect the puzzle. Our identification strategy uses within-firm-year cross-market variation in real exchange rates and tariffs to identify the responses of export participation, export revenue and the product dimension of exporting to these variables. We show that (i) the weak response of export revenue of long-time market participants to real exchange rates is key to the behavior of aggregate exports, (ii) export participation also responds less to real exchange rates than to tariffs, but this alone cannot explain the puzzle; and (iii) the revenue response of long-time market participants cannot be accounted for by product entry responses. Hence any model that can successfully account for the puzzle needs to match the intensive margin responses of exporting firms.

Specialization, Factor Accumulation and Development

We estimate the effect of factor proportions on the pattern of manufacturing specialization in a cross-section of OECD countries, taking into account that factor accumulation responds to productivity. We show that the failure to control for productivity differences produces biased estimates. Our model explains 2/3 of the observed differences in the pattern of specialization between the poorest and richest OECD countries. However, because factor proportions and the pattern of specialization co-move in the development process, their strong empirical relationship is not sufficient to determine whether specialization is driven by factor proportions, or by other mechanisms also correlated with level of development.