Publications by Author: Itskhoki, Oleg

2010
Gopinath, Gita, and Oleg Itskhoki. 2010. “In Search of Real Rigidities”. Abstract

The closed and open economy literatures work on estimating real rigidities, but in parallel. We bring the two literatures together to shed light on this question. We use international price data and exchange rate shocks to evaluate the importance of real rigidities in price setting. We show that consistent with the presence of real rigidities the response of reset-price inflation to exchange rate shocks depicts significant persistence. Individual import prices, conditional on changing, respond to exchange rate shocks prior to the last price change.

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Presented at the NBER 25th Macroannual Conference, April 9-10, 2010.

2007
Gopinath, Gita, Oleg Itskhoki, and Roberto Rigobon. 2007. “Currency Choice and Exchange Rate Pass-through”. Abstract

A central assumption of open economy macro models with nominal rigidities relates to the currency in which goods are priced, whether there is so-called producer currency pricing or local currency pricing. This has important implications for exchange rate pass-through and optimal exchange rate policy. We show, using novel transaction level information on currency and prices for U.S. imports, that even conditional on a price change, there is a large difference in the pass-through of the average good priced in dollars (25%) versus non-dollars (95%). This finding is contrary to the assumption in a large class of models that the currency of pricing is exogenous and is evidence of an important selection effect that results from endogenous currency choice. We describe a model of optimal currency choice in an environment of staggered price setting and show that the empirical evidence strongly supports the model's predictions of the relation between currency choice and pass-through. We further document evidence of significant real rigidities, with the pass-through of dollar pricers increasing above 50% in the long-run. Lastly, we numerically illustrate the currency choice decision in both a Calvo and a menu-cost model with variable mark-ups and imported intermediate inputs and evaluate the ability of these models to match pass-through patterns documented in the data.

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Helpman, Elhanan, and Oleg Itskhoki. 2007. “Labor Market Rigidities, Trade and Unemployment”. Abstract

We study a two-country two-sector model of international trade in which one sector produces homogeneous products while the other produces differentiated products. The differentiated- product industry has …rm heterogeneity, monopolistic competition, search and matching in its labor market, and wage bargaining. Some of the workers searching for jobs end up being unemployed. Countries are similar except for frictions in their labor markets. We study the interaction of labor market rigidities and trade impediments in shaping welfare, trade ‡flows, productivity, price levels and unemployment rates. We show that both countries gain from trade but that the ‡flexible country— which has lower labor market frictions— gains proportionately more. A ‡flexible labor market confers comparative advantage; the fl‡exible country exports differentiated products on net. A country bene…fits by lowering frictions in its labor market, but this harms the country’s trade partner. And the simultaneous proportional lowering of labor market frictions in both countries benefi…ts both of them. The model generates rich patterns of unemployment. Specifi…cally, trade integration— which bene…fits both countries— may raise their rates of unemployment. Moreover, differences in rates of unemployment do not necessarily re‡flect differences in labor market rigidities; the rate of unemployment can be higher or lower in the ‡flexible country. Finally, we show that the ‡flexible country has both higher total factor productivity and a lower price level, which operates against the standard Balassa-Samuelson e¤ect.

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