Jeongwon (John) Son

[Publications]

"To what extent are tariffs offset by exchange rates?" with Olivier Jeanne

Journal of International Money and Finance, 2024

Abstract: In theory, tariffs should be partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. We find, based on a calibrated model, that the tariffs imposed by the US in 2018-19 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19.

[Working Papers]

"Revisiting the Trilemma: Sectoral trade-offs and exchange rate management in emerging markets"

(Job Market Paper, Link)

Abstract: Many emerging market economies (EMEs) float the exchange rate and simultaneously manage it by using capital controls or foreign exchange intervention. We rationalize this with a model featuring a sectoral trade-off of monetary policy. Monetary policy can stabilize the tradable sector, but only at the cost of destabilizing the non-tradable sector. Managing the exchange rate to stabilize the tradable sector alleviates this trade-off. We characterize the differences between EMEs and advanced economies that explain why the former need to manage the exchange rate more than the latter and find that higher volatility of shocks and lower inter-sectoral labor mobility in EMEs are the main drivers. Additionally, we find that the welfare gains from exchange rate flexibility dominate the gains from capital controls even for EMEs. However, if we only consider shocks to external financial conditions the opposite holds.

[Work in Progress]

"Sudden stops and the macro-prudential role of monetary policy" with Paolo Cavallino

Abstract: Many emerging market economies have successfully overcome "Original Sin," enabling them to borrow in their local currency on international financial markets. However, despite this achievement they remain vulnerable to sudden stops. We construct a small open economy model of sudden stops without currency mismatch in the external balance sheet. Sudden stops are driven by an increase in the asset holdings of domestic banks following capital flight of foreign investors. When banks’ leverage constraint becomes binding, the capital flight causes a domestic credit crunch and a severe recession. The optimal monetary policy has a macro-prudential component and leans against the accumulation of domestic and external debt.

"Portfolio vs Demand system: Comparing the spillover effects of foreign exchange intervention"

[Non-academic articles]

"Is the US dollar shirking its "exorbitant duty"?" with Olivier Jeanne (PIIE blog)