As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Linda Tesar, Professor of Economics at University of Michigan.

She will present her research entitled Regional Effects of Exchange Rate Fluctuations, coauthored with Christopher L. House (University of Michigan and NBER) and Christian Proebsting (EPFL | Ecole Polytechnique Fédérale de Lausanne).

Abstract: We exploit differences across U.S. states in terms of their exposure to trade to study the effects of changes in the exchange rate on economic activity at the business cycle frequency. We find that a depreciation in the state-specific trade-weighted real exchange rate is associated with an increase in exports, a decline in unemployment and an increase in hours worked. The effect is particularly strong in periods of economic slack. We develop a multi-region model with inter-state trade and labor flows and calibrate it to match the state-level orientation of exports and the extent of labor migration and trade between states. The model replicates the relationship between exchange rates and unemployment. Counterfactuals show that the high degree of interstate trade plays a dominant role in transmitting shocks across states in the first year, whereas interstate migration shapes cross-sectional patterns in following years. The model suggests that a 25% Chinese import tariff on U.S. goods would be felt throughout the United States, even in states with small direct linkages to China, raising unemployment rates by 0.2 to 0.7 percentage points in the short run.

Linda Tesar is a Professor of Economics in the Department of Economics at the University of Michigan. She is a Research Associate at the National Bureau of Economic Research and the Editor of the IMF Economic Review. She received her doctorate from the University of Rochester. She has been a visitor in the Research Departments of the International Monetary Fund, the Board of Governors of the Federal Reserve System, and the Federal Reserve Bank in Minneapolis.
Professor Tesar’s research is in the field of international finance, with particular interests in the international transmission of business cycles and fiscal policy, the benefits of global risksharing, capital flows to emerging markets, the impact of exchange rate exposure, international tax competition and the challenges facing the euro area.