The Macro Neutrality of Exchange-Rate Regimes in the presence of Exporter-Importer Firms

Revise and Resubmit at the Journal of International Economics

  2022 Best JMP Award – Special Mention of Merit

EEA and UniCredit Foundation

I characterize exchange-rate regime breaks for thirty countries between 1960 and 2019, and I establish that while they affect the volatilities of nominal and real exchange rates they do not change the volatilities of other real macro variables (output, consumption, investment, and net exports). This is true even in countries in which exports and imports represent a large component of gross domestic product. I document that current leading models of exchange rate determination cannot match these facts. I propose a model with financial frictions and exporter-importer firms which matches the behavior of nominal and real exchange rates and real macro variables across exchange-rate regimes, even for economies in which the sum of exports and imports exceeds gross domestic product.

Exchange-Rate Regimes and the Behaviour of Exporters

(with Luca Riva and Marco Stenborg Petterson)

  July 2026

This paper proposes a firm-level mechanism that explains why exchange-rate regimes are largely neutral with respect to real macro variables: exporters actively adjust marginal costs and markups to absorb nominal exchange-rate fluctuations. We quantify this mechanism using micro-level data from the European car market (1970–99). We show that floating regimes are associated with limited adjustment in destination currency prices and limited response in quantities sold. We then estimate a structural demand-and-supply system to recover product level markups and marginal costs. At breaks from pegged to floating regimes, producer currency markups (marginal costs) fall on impact by around 11% (10%). A two-country real business cycle model with segmented financial markets, incorporating pricing-to-market and operational hedging, rationalises these patterns. Our model underscores the role of real micro rigidities, rather than nominal rigidities, in the weak transmission of exchange-rate fluctuations to real macro variables.

Monetary Regimes and Real Exchange Rates: Product-Level Evidence over Five Decades

(with Marco Mello and Jason Kim)

  July 2026

This paper constructs a new dataset of tradable and nontradable retail price series for sixteen European countries from 1972 onward. Using these data, we document three empirical facts on how monetary regimes affect product level prices. First, we find persistent deviations from the law of one price, particularly for nontradables under floating exchange-rate regimes. Second, monetary-regime breaks—shifts between pegged and floating exchange rate regimes—change the volatility of product-level real exchange rates while leaving the volatility of relative prices unchanged. Finally, the volatility of the real exchange rates of tradables responds less to monetary-regime breaks than that of nontradables, reflecting a stronger contemporaneous response of the relative prices of tradables to nominal exchange-rate fluctuations under floating regimes. 

The Mussa Puzzle: A Generalization

European Economic Review, 149, October 2022

One of the most compelling pieces of evidence for monetary non-neutrality is the Mussa puzzle: the break in the monetary regime when the Bretton Woods system broke down increased the volatility of not only the nominal exchange rate but the real exchange rate. Using data covering forty-four countries from 1954 to 2019, I find that the Mussa puzzle is generalizable: any break in a monetary regime that changes the volatility of the nominal exchange rate also changes the volatility of the real exchange rate. This provides further evidence of monetary non-neutrality. 

Heterogeneous Effects of Macroprudential Policies: Cross-Country Evidence from Composite Measures

(with Lorenzo Carbonari, Alessio Farcomeni, and Giovanni Trovato)

November 2025

Using a dimension-reduction approach, we construct composite measures of macroprudential policies (MaPPs) and apply them to a panel of 119 countries over 2000–2015 to evaluate the effectiveness of MaPPs in stabilizing private credit while explicitly accounting for unobserved cross-country heterogeneity. Overall, our findings indicate that the success of macroprudential interventions depends critically on country-specific structural and financial conditions rather than on the mere adoption of policy tools. Specifically, we show that MaPPs do not exert uniform effects: depending on the macro-financial environment, they may either dampen or amplify credit volatility. Borrower-targeted measures are generally effective in low-income and moderate-leverage economies, while financial-intermediary-targeted measures display context-dependent, and occasionally procyclical, effects.

Mr. Keynes and the “Classics”; A Suggested Reinterpretation

(with Gauti B. Eggertsson)

NBER Working Paper, August 2021

This paper revisits and proposes a resolution to an empirical and theoretical controversy between Keynes and the “classics” (or monetarists). The controversy dates to Keynes’s General Theory (1936)—most famously formalized in Hicks’s (1937) classic Econometrica article, in which the IS-LM model is first formally stated. We first replicate empirical tests formulated in the late 1960s and ’70s and show that more recent data have more statistical power and resolve the empirical debate in favor of the Keynesians, at least according to the criteria of the literature at that time. We then show, using a simple dynamic stochastic general equilibrium (DSGE) model, that the empirical tests suffer from the Lucas (1976) critique, as the conclusion fundamentally depends upon the assumed policy regime. Nevertheless, we argue, this new empirical result is useful: it provides evidence for the existence of a “Keynesian policy regime” according to which traditional monetary expansion loses its impact in the absence of a policy regime change, in the sense of Sargent (1982).