| This dissertation studies the implications of state-dependent pricing in open economies. The first chapter, "Expectations and Exchange Rate Dynamics: A State-Dependent Pricing Approach," introduces state-dependent pricing and strategic complementarity into an otherwise standard macroeconomic model with nominal rigidities. Relative to previous work in this area, there are new implications for the dynamics of real and nominal economic activity: complementarity in the timing of price adjustment dramatically alters an open economy's response to monetary disturbances. Using a two-country producer-currency-pricing environment, our framework replicates key international features following a domestic monetary expansion: a high international output correlation relative to consumption correlation, a delayed overshooting of exchange rates, a J-curve dynamic in the domestic trade balance, and a delayed surge in inflation across countries. Overall, the model is consistent with many empirical aspects of international economic fluctuations, while stressing pricing behavior and exchange rate effects highlighted in the traditional work of Mundell, Fleming, and Dornbusch.; The macroeconomic literature with nominal rigidities has recently concentrated on market segmentation for tradable goods or so-called pricing-to-market models. The second chapter, "Pricing-to-Market with State-Dependent Pricing," studies the implications of pricing-to-market for the dynamics of real and nominal economic activity within a simple model which embodies elements of state-dependent pricing and strategic complementarity. In contrast to its time-dependent variants, a domestic monetary shock spills over to foreign consumption as movements in the distributions of price-setters influence foreign aggregate prices.; The third chapter, "Capital Accumulation, Nominal Rigidities, and International Business Cycles" (joint with Marianne Baxter) is motivated by the observation that most papers in the growing literature on monetary policy in open economies abstract from investment and capital accumulation. This is a potentially serious omission, since investment goods represent a large share of international trade and account for most of business-cycle fluctuations in the levels of exports and imports. This chapter begins by incorporating neoclassical investment dynamics into the state-dependent pricing models developed in the previous chapters. This chapter then asks how the predictions differ when the models include capital and demonstrates the model features required to replicate the salient characteristics of open economy business cycles. |
