Title: Essays in international and financial economics
Description: The first chapter presents a model of trade with heterogeneous firms under demand uncertainty along with empirical tests of its predictions. The model shows that firms facing higher demand unpredictability have more incentives to chose air transportation over sea transportation. Indeed, by reducing the lag between the production decision and final delivery, air transportation enables firms to better forecast demand levels, hence increasing their expected profits despite the higher cost. At the sector level, the model shows that unpredictability predicts the prevalence of air transportation, which in turn determines the distance elasticity of trade flows. There is strong evidence that corroborates the predictions of the model. We build a measure of demand unpredictability based on the model and provide empirical evidence showing that the factors we highlight do explain over 60% of the variation in distance elasticity across sectors. The second chapter shows that corruption deters trade through the creation of delays. Indeed, in manufacturing trade flow data, trade is adversely affected by the corruption level of the exporter, but more so in sectors that are more time-sensitive. Time-sensitivity is measured using the mean level of unpredictability as constructed in Chapter 1.

The third chapter investigates the optimal risk-management demand for currencies. We find that currencies fall along a spectrum. The euro, US dollar and Swiss franc tend to covary negatively with global equity markets so that holding them helps reduce the variance of investors' portfolios, generating a positive risk-management demand for them. The Australian and Canadian dollars fall at the other extreme, while the Japanese yen and the British pound fall in the middle. In the cross-section, average interest rates are in line with standard asset pricing equilibrium since currencies with positive demands have lower interest rates on average. Yet, in the time-series, we find that the positive demand for the euro, Swiss franc and US dollar is higher when interest rates on these currencies are higher, which is at odds with standard asset pricing equilibrium.