Clausen Center Director and Professor
Department of Economics and Economic Analysis and Policy Group, Haas School of Business
Pierre Olivier Gourinchas is professor in the Economics department and Haas School of Business at the University of California, Berkeley, and faculty director of the Clausen Center for International Business and Policy. He is a member of the French Council of Economic Advisors, and Editor-in-Chief of the IMF Economic Review, Research Fellow at the Center for Economic Policy Research, and Research Associate at the National Bureau of Economic Research (Cambridge, Massachusetts). His main research interests are in international macroeconomics and finance. His recent research focuses on the importance of the valuation channel for the dynamics of external adjustment and the determination of exchange rates; the determinants of capital flows to and from developing countries; on international portfolios; global imbalances; international price discrimination; and the global financial crisis.
Summary of recent papers:
Coauthors: Camila Casas (Banco de la Republica), Federico J. Dıez (Federal Reserve Bank of Boston), Gita Gopinath (Harvard)
Date: August 2017
Citation: Working Paper
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) terms of trade are stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports and export expansions following depreciations are weak. Using merged firm level and customs data from Colombia we document strong support for the dominant currency paradigm.
Date: Summer 2017
Coauthors: Ricardo Caballero (MIT) and Emmanuel Farhi (Harvard University)
Citation: Journal of Economic Perspectives
This paper defines a safe asset as a simple debt instrument that is expected to preserve its value during adverse systemic events. When it comes to forming beliefs about which assets are safe, reputations and history matter. For the last few decades, with minor cyclical interruptions, the supply of safe assets has not kept up with global demand. The reason is that the collective growth rate of the advanced economies that produce safe assets has been lower than the world’s growth rate, which has been driven disproportionately by the high growth rate of high-saving emerging economies such as China. The signature of this growing shortage is a steady increase in the price of safe assets necessary to restore equilibrium in this market. Equivalently, global safe interest rates must decline, as has been the case since the 1980s. This article examines the main facts and macroeconomic implications of safe asset shortages, which remain a key source of fragility for the global economy. We pose the question of what are the likely short- to medium-term escape valves to the global macroeconomy? We analyze four of them: 1) a valuation rise through the exchange rate appreciation of safe asset producer economies, and the US dollar in particular; 2) the issuance of public debt; 3) the production of private safe assets; and 4) changes in regulatory frameworks, global risk sharing, as well as re-profiling of central bank asset purchase practices to reduce the demand for safe assets. Each of these comes with its own macroeconomic and financial trade-offs, which are discussed in the paper.