Logo: to the web site of Uppsala University

Chapter I: I study the role of international trade in the transmission of foreign monetary policy to domestic firms' price-setting decisions. Using Swedish microdata on prices and trade exposure, I show that firms with a higher export share to the euro area set relatively higher prices following a contractionary euro area monetary policy shock. The differential response is stronger for domestic prices than for export prices. I find no significant difference in the price response of firms with a higher share of imported inputs from the euro area. These results are consistent with an increase in euro area demand for Swedish goods due to an appreciation of the euro against the Swedish krona. In support of this interpretation, I show that firms with a higher export share to the euro area face relatively higher export demand following the contractionary shock.

Chapter II: The response of prices and inflation to changes in monetary policy is a crucial channel of monetary transmission. In this chapter, we study this channel using microdata on producer prices and firm fundamentals for Swedish firms. A contractionary monetary policy shock, identified using high-frequency interest rate changes around Riksbank policy announcements, leads to a significant and large decline in producer prices, with a response of product-level prices that matches the aggregate response of the Producer Price Index. Firm size arises as a source of heterogeneity in the price response: Small firms adjust prices significantly less in response to changes in monetary policy. Consistent with size being a proxy for financial constraints, we find that small firms have a higher share of debt to credit institutes and adjust debt significantly more in response to changes in monetary policy. In contrast, we find no significant difference across the size distribution in the response of marginal cost to monetary policy. Our results, which can be rationalized with models of customer markets and financial frictions, provide new insights into the transmission of monetary policy to firm-level pricing decisions and inflation.

Chapter III: I develop a dynamic stochastic general equilibrium model that matches the empirical results of Ludvigson et al. (2021) on the causal direction of uncertainty. Their results show that financial uncertainty is a cause of recessions, while macroeconomic uncertainty is a consequence of recessions. I show that a medium-scale New Keynesian model augmented with learning about unobserved productivity (endogenous macro uncertainty) and financial frictions with a second-moment shock affecting the severity of these frictions (exogenous financial uncertainty) can match their results. The model is parameterized using a combination of calibration and estimation by simulated method of moments to match business cycle moments from U.S. macro and financial data. Quantitatively, financial uncertainty has a large effect on economic activity and is an important driver of business cycle fluctuations, while endogenous macro uncertainty has a negligible effect and is not an important amplifier of business cycles.