Why do nearly 80 countries choose to fully or partially peg their exchange rate to the US dollar, and how much monetary policy independence are they giving up by doing so?
The answers to questions like these can be elusive, whether you’re someone who feels like conversations about macroeconomics on the evening news are beyond your head, or even an academic economist.
“Without an empirically relevant model of exchange rates, it is impossible to credibly answer questions about, for example, the costs and benefits of common currency areas, such as the euro area, which eliminate fluctuations in exchange rates between their member countries,” said Oleg Itskhoki, Venu and Ana Kotamraju professor of economics at UCLA. “Similarly, questions about optimal exchange rate policy and the costs and benefits of partially managed exchange rates also require such a theoretical framework.”
In new research, Itskhoki has developed new frameworks that will spark considerable thought in the field in the future. For these insights, the 39-year-old whose research focuses on macroeconomics and international economics won the John Bates Clark Medal of the American Economic Association. The prize is awarded to an economist under the age of 40 who is judged to have made the most significant contribution to economic thought and knowledge.
“This is the first time a UCLA faculty member has won this prestigious award,” said Jinyong Hahn, chair of the economics department. “Oleg Itskhoki is a star in the field of international economics who has solved important puzzles about exchange rates and provided insight into the relationship between foreign trade and income inequality.”
Although he came from a family of physicists and inherited the family interest in the field, Itskhoki was born in the Soviet Union and grew up during the turmoil of transition-era Russia, during which the legacy of government control over science has cast a long shadow. Seeing her older sister’s success in the more stable realm of economics, Itskhoki followed in her footsteps.
He valued the opportunity to immerse himself in scientific work that left his career options open, giving him the security of knowing that his research in economics qualified him for a wider field of work outside of academia than a major in physics. high level could have been. And the enigmas and problems inherent in international economic policies fascinated him more and more as he delved deeper into their exploration – especially since the field granted him more independence to follow his curiosity than he could have. within the framework of a laboratory with rigidly established priorities.
“I really enjoyed the work and as I went through school I found myself more and more engrossed in it,” said Itskhoki, who came from Princeton University to UCLA. in 2019. “I still am today – I feel so lucky to have made this feel like a hobby that I love in my life.
In the official award citation listing the strengths of Itskhoki’s research, the association highlighted its key idea that financial market noise, rather than economic fundamentals, could be the main driver of exchange rates. This idea offers a unifying theory that solves five of the main puzzles in the field of exchange rates and provides a framework that many believe will serve as the definitive lens through which economists will examine these problems in the future.
“Through his masterful application of empirical and theoretical tools, Itskhoki revisited classic questions of international finance and international trade, solving long-standing puzzles and providing new economic insights into important phenomena in the international economy” , concluded the committee.
Although the Clark Medal does not include a monetary award, it reflects a huge vote of confidence from the entire field of economics. The Clark Medal is considered second only to the Nobel Prize in terms of prestige and it has long served as a precursor to earning this honor as well. Earning such a visible sign of respect from his peers means a lot to Itskhoki.
“It’s completely crazy – these things don’t happen. Well, they happen to someone, but you never expect it to be you,” Itskhoki said. nicest part of it all is hearing so many people say they teach my essays – and love teaching them! I’m so grateful to hear that my work is influential in some way.
Giving credit to his mentors, colleagues and predecessors in the field, Itskhoki chooses to view his victory as a community victory rather than a personal one. (His family, including his sister who inspired his career path with hers, couldn’t be prouder, he said.) Itskhoki is especially thrilled to see “UCLA” now appear among the home institutions. of Clark Medal winners, a list that has long been dominated by schools like Harvard and MIT.
“UCLA is a very special place, where public service, research and teaching are deeply valued,” said Itskhoki. “I find it so inspiring, and I couldn’t be prouder to see schools like ours and UC Berkeley become the top national institutions in economics.”
Teaching remains a passion for Itskhoki – in addition to doctoral courses in macroeconomics nationally and internationally, Itskhoki also teaches an international finance course for third and fourth year undergraduate students.
“Economics is in the news every day – for example, it has played a big role in the conversation about the COVID crisis – and we discuss everything about it: the trade war with China, tax reform, the inflation, food prices and the best way for governments to respond to all of this,” he said. “The models we’ve created cited by the American Economic Association have answers to some of these questions , and I try to keep everything grounded in real-world events. Whether we know it or not, the economy affects us all, so it is important to see the state of thinking on these topics.
Looking to the future, Itskhoki doesn’t think in terms of awards or honors; he is focusing on the next challenges he wants to tackle in his research.
“There is still a lot of work to be done on exchange rates; in particular, we are currently investigating optimal exchange rate policies for government using insights from our previous work,” said Itskhoki. “I am also fascinated by the topic of new high-tech industries and AI technologies. and the associated issues of productivity and the measurement of well-being around the world with the proliferation of AI.