We investigate the relationship between deviations from the covered interest rate parity (CIP) and Swiss capital outflows since the great financial crisis. While the CIP held tightly before the crisis, it has been failing for most currencies vis-à-vis the US dollar ever since. We expect CIP deviations to adversely affect outflows, as they generally result in additional costs for Swiss investors. We find empirical support for our hypothesis. Our results show that with increasing CIP deviations, Swiss portfolio investment debt outflows decrease significantly. This decrease could have implications for the demand for domestic currency investments.
A common assumption in the quantitative Ricardian international trade literature is that within a country, import shares are equalized across sectors. This assumption is at odds with the data, which show within-country heterogeneity in sectoral import behavior. I build a multi-country, multi-sector general equilibrium Ricardian trade model, in which I include a new extensive and intensive international trade margin at the importing sector level. Counterfactual analysis shows that accounting for within-country sector-specific import behavior is significant for the level of welfare gains from trade. Calibrations based on two cross-country data sources show that a benchmark Ricardian model with equalized import shares across sectors underestimates welfare gains from trade by 13 to 24% on average compared to the model accounting for within-country sectoral import patterns. The benchmark model underestimates the productivity gains of sectors which account for most country-level imports and the spillovers of their productivity gains on other sectors through sectoral linkages.
