Origins of International Factor Structures

Zhengyang Jiang and Robert Richmond

No 30319, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that exchange rate correlations tend to be explained by the global trade network while consumption correlations tend to be explained by productivity correlations. Sharing common trade linkages with other countries increases exchange rate correlations beyond bilateral linkages. We explain these findings using a model of the global trade network with market segmentation. Interdependent global production generates international comovements, while market segmentation disconnects the drivers of exchange rate correlations from the drivers of consumption correlations. Moreover, we show that the trade network generates common factors found in exchange rates. Our findings offer a trade-based account of the origins of international comovements and shed light on important frictions in international markets.

JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-ifn, nep-int, nep-net and nep-opm
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Published as Zhengyang Jiang & Robert J. Richmond, 2023. "Origins of international factor structures," Journal of Financial Economics, vol 147(1), pages 1-26.

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