I am excited to announce that I will begin working as an Assistant Professor this fall at the New Economic School in Moscow (ranked #1 in Russia and currently ranked #117 in the world in terms of research). I am finishing my Ph.D. at UC Davis, ranked 3rd in the world in International Trade, and ranked 9th in Economic History (or 6th).
Office Hours: See here.
E-mail: dolcampb at gmail dot com
Research Interests: International Trade, Economic History, Open-Economy Macroeconomics, Macroeconomic Development
On the Causes of Secular Stagnation: China, Relative Prices, and the Collapse of Manufacturing. VoxEU column, April 2014. Earlier version.
Adverse Trade Shocks, Unit Labor Costs, and Inequality. Coming Soon.
Job Market Paper:
Relative Prices, Hysteresis, and the Decline of American Manufacturing. 2014. Under Review.
This study uses new measures of real exchange rates to study the collapse of US manufacturing employment in the early 2000s in historical and international perspective. To identify a causal impact of RER movements on manufacturing, I compare the US experience in the early 2000s to the 1980s, when large US fiscal deficits led to a sharp appreciation in the dollar, and to Canada's experience in mid-2000s, when high oil prices and a falling US dollar led to an equally sharp appreciation of the Canadian dollar. I use disaggregated sectoral data and a difference-in-difference methodology, finding that an appreciation in relative unit labor costs for the US lead to disproportionate declines in employment, output, investment, and productivity in relatively more open manufacturing sectors. In addition, I find that the impact of a temporary shock to real exchange rates is surprisingly long-lived. I explain the persistent effects of exchange rate movements on manufacturing using a Melitz model extension with sunk fixed costs, which leads to a dynamic gravity equation whereby shocks to trade have persistent effects that decay over time. The appreciation of US relative unit labor costs can plausibly explain more than two-thirds of the decline in manufacturing employment in the early 2000s.
Older, JMP version from 2013. Additional Appendix. Data available on request.
Media: VoxEU version. Blog post by Ryan Avent for The Economist. Equitablog. Naked Capitalism.
Through the Looking Glass: A WARPed View of Real Exchange Rate History. 2013. With Ju Hyun Pyun (Korea University). Under Review.
Commonly used trade-weighted real exchange rate indices are computed as indices-of-indices, and thus do not adequately account for growth in trade with developing countries. Weighted Average Relative Price (WARP) indices solve this problem but do not control for productivity differences, as developing countries are observed to have lower price levels via the Balassa-Samuelson effect. In this paper, we remedy these problems in two ways. First we propose a Balassa-Samuelson productivity adjustment to Weighted Average Relative Price indices (BS-WARP). Secondly, we introduce a Weighted Average Relative Unit Labor Cost index (WARULC) for manufacturing and show that this measure does a much better job predicting trade imbalances and declines in manufacturing employment than the IMF's Relative ULC measure created as an index-of-indices. Our series reveal that for many countries currently mired in liquidity traps, relative prices reached historic highs heading into the financial crisis of 2008. We document that in 2002 -- during the surprisingly sudden collapse in US manufacturing -- US relative prices had not been that high relative to trading partners since the worst year of the Great Depression.
Data: RER Indices, v1.0 (stata 11 format, excel 2010 format).
Media: VoxEU Synopsis, Blog post by Ryan Avent in The Economist. Equitablog. Naked Capitalism.
Estimating the Impact of Currency Unions on Trade: Solving the Glick and Rose Puzzle. World Economy, 36: 1278-1293, 2013.
The line: The early large time series estimates of currency unions on trade were driven by omitted variables including warfare and communist takeovers, and are not robust to controlling for dynamics as per my 'Dynamic Gravity Theory' below. Countries considering joining the Euro should not expect any large impact on trade. Citation in Bibtex. Previous, ungated draft, Dec. 2012. Slides here. Blogged at Economic Logic here. Short version. Code here and data here. Earlier Draft from Feb., 2012. (Note: Repec ranks World Economy 71st by citations in the past 10 years.)
Previous Research/Under Review:
The Diffusion of Development: Along Genetic or Geographic Lines?, Jan., 2013. Revise and Resubmit. With Ju Hyun Pyun (Korea University). The line: Climatic distance to the US predicts development, genetic distance does not. Web Appendix. Under Review. Previous Version. Dec., 2011. Data here and code here.
History, Culture, and Trade: A Dynamic Gravity Approach. August 2010 (to be revised). The line: trade costs determine relative prices, relative prices determine production and consumption baskets, and both of these are persistent. Hence, trade costs play a role in cultural formation and which contributes to persistence in trade. Thus history matters for trade. Interesting fact: Bilateral trade shares in 1870 can predict trade shares in 2000, even while controlling for the standard gravity arguments such as GDP, geographic variables, etc.
Why Isn't the Whole World Developed? Evidence from Similarity in Soil Suitability. June, 2010 (to be revised). The line: Combining a human capital-augmented Malthusian growth model with the insights of Kamarck/Crosby/Diamond can potentially explain a large fraction of comparative development, including why latitude and income are so highly correlated.
Output vs. Trade Costs in the Great Depression and Today, 9/2009 written with David Jacks, Chris Meissner, and Dennis Novy on the dramatic decline in trade during the Great Recession for VoxEU. VoxEU profile here.
Collapse: The Local Economic Consequences of Real Exchange Rate Movements
Abstract: At the height of American manufacturing, in 1979, Indiana had a per-capita GDP close to that of New York, and a substantially higher income than any southern state. From 1979-1986, employment growth in Indiana
substantially lagged employment growth of the economy overall, and Indiana had become much poorer than New
York while several southern states had closed the gap. Why? I argue that Indiana's misfortune to be the most specialized state in terms of import-competing manufacturing led to declining fortunes when the US real exchange rate appreciated in the mid-1980s. Studying the period 1977-2008, I find that local labor markets specialized in tradable manufacturing goods and agriculture experienced declines in employment and income per capita, and a decline in birth rates and an increase in death rates triggered by the out-migration of the young when the real exchange rate appreciated. Once the dollar returned to previous levels, the hardest-hit communities and states never recovered.
Bretton Woods II, Relative Prices, and the Anatomy of Balance-Sheet Recessions: A Rethink
Abstract: The combination of capital controls and foreign currency accumulation is generally thought to be harmless or even beneficial to trading partners whose currency is being accumulated. Using a New Keynesian model similar to Krugman and Eggertson (2012), I show that currency overvaluation can lead to both trade imbalances and the overaccumulation of debt, which may increase the likelihood of balance sheet recessions, financial crises and liquidity traps. In addition, having trading partners who use capital controls to undervalue their currencies can subtract directly from aggregate demand if monetary authorities cannot or will not offset the impact with looser policy, either due to the liquidity trap or due to unfamiliarity with non-traditional tools of monetary policy at the zero lower bound. Currency overvaluation can slow the process of deleveraging in a liquidity trap. Lastly, the impact of currency overvaluation due to trading partner capital controls are likely to be exacerbated when the tradable sector exhibits hysteresis. When trading partners are unwilling to revalue their currencies, a second-best monetary policy would seek to tax foreign currency accumulation via a higher inflation target.
Monetary Policy at the Zero-Lower Bound: Self-Induced Paralysis?
Abstract: This study investigates the frequency of central bank policy innovations as a function of surprises in Macroeconomic time series data including inflation, output, and unemployment, and as a function of uncertainty over the effectiveness of policy due to the zero lower bound. In the 1920s and from 1955 to 2008, there was never a two-year period when the Federal Reserve did not alter the Federal Funds rate. By contrast, from the end of 2008 to the end of 2010, and during long stretches of the Great Depression, the federal funds rate was constant while changes in the Federal Reserve's Balance Sheet were modest. This is especially noteworthy in light of the repeated large downward revisions to the Federal Reserve's growth and inflation forecasts since 2008. Similar trends are found in Japan and Europe during the Great Depression period and today. This paper documents that in practice, when central banks operate near the zero lower bound, policy becomes systematically more passive in response to data surprises. A quantitative keyword analysis of central bank minutes and speeches conducted in local languages suggests a large role for policy uncertainty, unfamiliarity with non-traditional monetary tools, and status-quo bias.
Links for Students (old):
Money and Banking, 135:
Section Notes 11/13/2012
Section Notes 11/27/2012
Guest Lecture on Rise of China, for POL123. February, 2014.
Employment to Population Ratio, Age 25-64
World Economic History Syllabus