Essays on international economics

My dissertation consists of three self-contained essays on international economics. The first and third chapters are solely authored, and both focus on different international dimensions of national policies. My first chapter offers a general theoretical mechanism to explain policy diversity among similar countries from an international perspective. The third chapter is an empirical investigation of the effects of international trade and financial linkages on the extent of cross-country monetary policy synchronization. My second chapter, coauthored with Rafael Dix Carneiro and Jade Vichyanond, theoretically and empirically explores within-firm heterogeneity in exchange-rate pass-through, and in so doing applies recent developments of heterogeneous firm literature in international trade to understand a classic puzzle in international macroeconomics.;The first essay studies optimal policies in a two country model when policies affect determinants of trade patterns. I show that welfare gains from trade can provide sufficient incentive for asymmetric equilibrium policies, even if the two countries have identical economic fundamentals. Any asymmetric equilibrium exhibits greater production specialization than the autarky optimum; this is the source of welfare gains. For this same reason, a more asymmetric Nash equilibrium Pareto dominates a less asymmetric one. I characterize necessary and sufficient conditions for existence of such asymmetric equilibrium. All equilibria are asymmetric if income is sufficiently convex in policy, under suitable restrictions on technologies and preferences. As an application, I consider a model where skill distribution is the determinant of trade patterns and the policy in question is education policy. When heterogeneous agents choose their skill level optimally, optimal skill function is convex in government policy. In this application, the general sufficient condition requires that the education cost of agents is relatively inelastic with respect to skill.;The second essay studies the effect of exchange rate shocks on the pricing decisions of multi-product firms. We construct a model to illustrate how firms adjust their prices, as well as quantities and product scope, in the event of an exchange rate depreciation. Firms' markups depend on their productivity levels and local distribution costs. Each firm faces a product ladder, according to which marginal costs of production are higher for products further away from the firm's core competency. In response to a real exchange rate depreciation, firms increase producer prices more for products closer to their core competency. We also show how the adjustments that firms undertake lead to a change in the distribution of sales across products. We then assess the predictions of the model on a rich Brazilian firm-level dataset that contains destination-specific and product-specific export values and volumes spanning the period of 1997--2006, during which Brazil experienced a series of drastic currency fluctuations. After controlling for industry and destination characteristics, we find that within-firm heterogeneity across products is an important determinant of exchange rate pass-through.;The third essay studies the evolution of comovement in monetary policy of the G-7 countries during the period 1980--2009. I estimate a Taylor rule for each country and use the residuals from the Taylor rule to estimate a Bayesian dynamic latent factor model allowing for common and Europe specific components. I quantify the importance of the G-7 factor in explaining the residual of the Taylor rule, and show that the G-7 factor plays a very important role during the period of globalization (1988--2003). I estimate the time path of the importance of the G-7 factor using rolling sub-samples, and show that both trade-openness and financial integration increase comovement in monetary policy.