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Dr Natalie Chen talks about her research on whether the choice of currency for invoicing goods affects import prices and domestic inflation

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Dr Natalie Chen talks about her research on whether the choice of currency for invoicing goods affects import prices and domestic inflation

What research projects are you currently involved with?

My research interests are in international economics, including international trade and international macroeconomics, and I am currently working on a number of different projects.

One of them investigates how the choice of the currency of invoicing for goods imported into the UK affects import prices and in turn domestic inflation. We use data from HMRC and we have been surprised to observe that around 60 percent of imports into the UK from non-EU countries are invoiced in a third currency. For example, if the UK imports from Japan, we would observe that imports are not invoiced in sterling or in yen as you might assume, but are instead invoiced in a third currency such as the US dollar. This is important because changes in the exchange rate affect domestic inflation, and it is thus crucial to look at the right exchange rate to determine the effect on inflation. What we show is that by using the right exchange rate we can explain why inflation has sometimes been higher or lower than expected.

A second project evaluates the heterogeneous effects of currency union membership on international trade flows. Finally, a last project investigates how exporters set their markups depending on the quality of the goods they export and on how far the destination markets where they export to are.

At the moment trade is a big issue– though in academia, trade is a very small field! One of the challenges we face as economists is to find a way to share our opinions with policymakers.
Associate Professor Natalie Chen

Why did you decide to become an economist, specialising in international economics?

I attended the European School of Luxembourg which offered me a multilingual and multicultural environment - I liked having people from different backgrounds around me. But when I left high school I had no idea what to do with my life. In high school I did not study economics, though many of my friends did. What I really enjoyed in high school was geography – and geography is to some extent related to economics. Therefore, I thought I should try economics because I was also interested in how different countries interact with each other.

My first research projects focused on different aspects of the European integration process, and later on I simply specialised my research in the field of international economics - and I still love it!

What impact do you hope your research will have on society?

I hope that my research will impact other researchers in the field and that it will also be useful for policy making.

Outside academia my research has been cited by policymakers at the Fed, the IMF, the OECD, and the European Commission – for example, the OECD is using a measure that I worked on with Dr Dennis Novy on how to measure trade costs. We looked at trade in goods and the OECD has adapted our work to study trade in services.

At the moment trade is a big issue– though in academia, trade is a very small field! One of the challenges we face as economists is to find a way to share our opinions with policymakers.

Why did you join the Economics Department at Warwick?

I decided to join Economics at Warwick because it is a very strong department in many different fields. It offers a great environment to pursue my research but also to teach to both undergraduate and postgraduate students who come from all around the world to study here. Warwick is very international, both the faculty and the students. And I have always liked being surrounded by people from different nationalities, different cultures – I think you learn a lot from other people with different cultures and backgrounds.

What has been your most memorable experience during your time in the department?

One has been to be awarded by the students the Excellence in Teaching Award as best third year undergraduate lecturer. I enjoy working with the undergraduates here who are hard working and dedicated students.

Another one has been to act as the local organiser for the Royal Economic Society annual conference that took place at Warwick for two years in a row, and is being held here again in April.

Further Reading:

  • Vehicle currency pricing and exchange rate pass-through (with W. Chung and D. Novy), CEPR Discussion Paper 13085.
  • VoxEU video: "Vehicle Currency Pricing and Exchange Rate Pass-Through" - https://voxeu.org/content/exchange-rates-and-inflation

  • Currency unions, trade, and heterogeneity (with D. Novy), CEPR Discussion Paper 12954. CEP Discussion Paper 1550. CESifo Working Paper 7123. See the policy column at VoxEU.
  • VoxEU video: "Currency unions, trade, and heterogeneity" - http://voxeu.org/content/currency-unions