Focusing on the pricing differential between the Renminbi onshore and offshore exchange rates, this paper characterizes the exchange rate fluctuations and investigates the effect of recent Renminbi currency market reforms. Using GARCH models, we find volatility clustering phenomena and leverage effect in the pricing differential. To estimate the effect of recent Renminbi currency market reforms on the linkage between the onshore and offshore markets, we construct an ARMA-Intervention model for distinguishing the short-run and long-run effects. These reforms are proved to either enlarge or shrink the pricing differential in the long run. We also find that recent Renminbi currency market reforms all increase the volatility of the pricing differential between the onshore and offshore exchange rates.
This study examines the role of credit constraints in determining the trade effect of exchange rate volatility. We first develop a small open economy general equilibrium model with credit constraints. In our model, constrained firms respond to real depreciations and appreciations in an asymmetric way, and exchange rate volatility reduces their exports on average. The effect of exchange rate volatility on unconstrained firms’ exports, however, is ambiguous. Overall, exchange rate volatility has a more negative impact on constrained firms. In a large sector-level bilateral trade dataset, we find robust empirical evidence supporting the predictions of the model. We show that financially more constrained sectors have a more negative exposure of their trade volumes to exchange rate volatility. Moreover, the estimated trade effects of exchange rate volatility vary substantially across sectors and can be either positive or negative depending on the degree of credit constraints.
Recent lawsuits and anecdotal evidence suggest that some platforms discriminate against certain users through non-price practices, discouraging their participation without directly increasing revenue. We show that a monopolist two-sided platform with a prejudice against certain users - modeled as more costly to serve - chooses to discriminate only if the cost savings from reducing such users’ participation outweigh the network benefits they create. Surprisingly, user surpluses may increase under discrimination because the platform often voluntarily lowers price(s) - sometimes on both sides - to attract other users. Therefore, tightening anti-discrimination policies for platforms can increase price and decrease welfare.
Focusing on the pricing differential between the Renminbi onshore and offshore exchange rates, this paper characterizes the exchange rate fluctuations and investigates the effect of recent Renminbi currency market reforms. Using GARCH models, we find volatility clustering phenomena and leverage effect in the pricing differential. To estimate the effect of recent Renminbi currency market reforms on the linkage between the onshore and offshore markets, we construct an ARMA-Intervention model for distinguishing the short-run and long-run effects. These reforms are proved to either enlarge or shrink the pricing differential in the long run. We also find that recent Renminbi currency market reforms all increase the volatility of the pricing differential between the onshore and offshore exchange rates.
This study examines the role of credit constraints in determining the trade effect of exchange rate volatility. We first develop a small open economy general equilibrium model with credit constraints. In our model, constrained firms respond to real depreciations and appreciations in an asymmetric way, and exchange rate volatility reduces their exports on average. The effect of exchange rate volatility on unconstrained firms’ exports, however, is ambiguous. Overall, exchange rate volatility has a more negative impact on constrained firms. In a large sector-level bilateral trade dataset, we find robust empirical evidence supporting the predictions of the model. We show that financially more constrained sectors have a more negative exposure of their trade volumes to exchange rate volatility. Moreover, the estimated trade effects of exchange rate volatility vary substantially across sectors and can be either positive or negative depending on the degree of credit constraints.
Recent lawsuits and anecdotal evidence suggest that some platforms discriminate against certain users through non-price practices, discouraging their participation without directly increasing revenue. We show that a monopolist two-sided platform with a prejudice against certain users - modeled as more costly to serve - chooses to discriminate only if the cost savings from reducing such users’ participation outweigh the network benefits they create. Surprisingly, user surpluses may increase under discrimination because the platform often voluntarily lowers price(s) - sometimes on both sides - to attract other users. Therefore, tightening anti-discrimination policies for platforms can increase price and decrease welfare.
