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The 2022 John Bates Clark Medal of the American Economic Association was awarded to Oleg Itskhoki, Professor of Economics at the University of California, Los Angeles for his path breaking contributions in international economics. This article summarizes Oleg Itskhoki’s work and places it in the context of the broader literature and emphasizes how it has shed new light on a number of long-standing puzzles regarding the behavior of exchange rates and international relative prices more generally and their connection to macroeconomic fluctuations and government’s choices of monetary and fiscal policies.

We propose a “dominant currency paradigm” with three key features: dominant currency pricing, pricing complementarities, and imported inputs in production. We test this paradigm using a new dataset of bilateral price and volume indices for more than 2,500 country pairs that covers 91 percent of world trade, as well as detailed firm-product-country data for Colombian exports and imports. In strong support of the paradigm we find that (i) noncommodities terms-of-trade are uncorrelated with exchange rates; (ii) the dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions, and this effect is increasing in the share of imports invoiced in dollars; (iii) US import volumes are significantly less sensitive to bilateral exchange rates, compared to other countries’ imports; (iv) a 1 percent US dollar appreciation against all other currencies predicts a 0.6 percent decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. We characterize the transmission of, and spillovers from, monetary policy shocks in this environment.

It is a tremendous honor for me to give the Martin Feldstein Lecture. Marty was an exceptional colleague at Harvard and inspired my journey from academia to the policy world. [...]