NSE WORKSHOP

Local Currency Pricing and International Tax Policies 

Time：10:30-12:00, 20 October 2016 (Thursday)

Speaker：Jenny Xu (HKUST)

Abstract
The international macroeconomics literature show that, in the presence of local currencypricing, optimal monetary policy is not able to replicatethe flexible price equilibrium. This paper explores if the combination ofinternational tax policy and monetary policy can replace the role of exchange ratesin such kind of economy. We show that under pricing to market, a state-contingent tax policycombination of consumption tax (subsidy) and export subsidy (tax)can fully mimic the response of exchange rates to adjust relative prices to country-specificproductivity shocks and achieve the flexible price allocation. Thisarrangement, however, requires international policy coordination,and it cannot be an equilibrium outcome to international tax gamewithout any restriction. These conclusions hold for both the static and the dynamic model with staggered price setting. Furthermore, in the dynamic model the international consumption tax can also correct the currency misallignments and thus central banks should again target producer-price inflation.

Speaker
Professor Juanyi (Jenny) Xu graduated from Zhejiang University with a B.Sc in Economics in 1996.  In 2005 she got her Ph.D in Economics from University of British Columbia in Vancouver, Canada. Before she joined HKUST Department of Economics in 2006, she worked in Simon Fraser University shortly. She is now an Associate Professor in HKUST. Professor Xu maintains an active research program on international macroeconomics and monetary economics. Her research has been focused on the analysis of the optimal monetary policy in open economies, especially for emerging market economies and the study of dollarization and its implication for international monetary policy and transmission of shocks. She is also interested in explaining the real exchange rate dynamics change and the international business cycle in China and other emerging market economies. Her works are published in Economic Journal, Journal of International Economics, and Journal of Development Economics. She has worked as a research fellow in Hong Kong Institute of Monetary Research.