题目：Exchange Rate Regime with Multinational Production
主讲人简介：Jiao SHI, Ph.D. in Economics from University of Wisconsin-Madison. Assistant Professor in Economics at Peking Univeristy HSBC Business School. Her research interests include various topics in international macroeconomics, international finance, and macroeconomics. Her research has examined issues such as the driving force and labor market implications of multinational production, welfare effect of cross-border production allocation, monetary policy implications of global value chains, exchange rate forecast, and exchange rate regimes.
内容摘要：Observing that fixed exchange rate regime has been favored by many countries who are most open to FDI inflows, we re-examine countries' preference over exchange rate regime in a two-country DSGE model with multinational production. The model features asymmetric economies representing developed and developing countries, respectively. Lured by lower labor cost, firms can relocate to produce abroad. We show that, as short-run FDI fluctuations exacerbate utility loss over business cycles, the possibility of production relocation has important implications on the choice of exchange rate regimes. For the developing country, embracing vertical FDI from the developed country creates long-run welfare gain together with increased short-run employment volatility. We show that this short-run cost is mainly paid by the developing country. And as a consequence, the developing country is more likely to benefit from a fixed exchange rate regime. In our benchmark case, the world is stuck in a sub-optimal fixed exchange rate system, because it only takes one country to fix the bilateral exchange rate.