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Three Essays On Monetary And Fiscal Policy In Dynamic General Equilibrium Models
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Book Synopsis Three Essays on Monetary and Fiscal Policy in Dynamic General Equilibrium Models by : Alvaro José Riascos Villegas
Download or read book Three Essays on Monetary and Fiscal Policy in Dynamic General Equilibrium Models written by Alvaro José Riascos Villegas and published by . This book was released on 2002 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Monetary and Fiscal Policy Interactions in Small Open Economies by : Thitima Chucherd
Download or read book Essays on Monetary and Fiscal Policy Interactions in Small Open Economies written by Thitima Chucherd and published by . This book was released on 2013 with total page 474 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis addresses interactions between monetary and fiscal policies in a theoretical dynamic stochastic general equilibrium (DSGE) model of a small open economy and in an empirical model under a structural vector error correction model (SVECM). The thesis consists of three essays. The contribution is both theoretical and empirical that enables a better understanding of the complexity of interactions between monetary and fiscal policies in small open economies. The first essay examines the equilibrium determinacy under monetary and fiscal rules. The goal is to investigate how monetary and fiscal policy interactions ensure a unique and non-explosive (determinate) equilibrium for a small open economy. The study focuses when policy makers implement a set of policy mixes to address domestic output price inflation control for monetary policy, debt stabilization for fiscal policy, and joint output stabilization tasks. The result indicates that two policy schemes facilitate a determinate equilibrium. First, monetary policy actively controls inflation when fiscal policy sets a sufficient feedback on debt. Second, monetary policy becomes passive against inflation when fiscal policy is insolvent. Adding output stabilization to each rule simply causes variants of this fundamental. An interest rate rule with output stabilization can be more passive against inflation while providing a stronger response to the output gap. Fiscal policy is required to set higher feedback on debt along with its stronger counter-cyclical policy. The second essay links between the equilibrium determinacy and policy optimization. This essay provides insights into the design of policy mixes and compares determinacy outcomes between two theoretical models of a small open economy: with and without an explicit exchange rate role. This study shows that policy interactions in a small open economy with an endogenous exchange rate is quite sophisticated, especially when a monetary rule is added with an output stabilization task and/or targeted to Consumer Price Index (CPI) inflation. Additional concern for monetary policy in an open economy causes a partial offset to its reaction on domestic output price inflation that weakens its effect on the real debt burden. To minimize economic fluctuations, policy makers should mute the role of output stabilization for monetary policy, and set minimum feedback on debt that is compatible with the degree of counter-cyclical fiscal policy. Substantially active response to inflation is satisfactory for monetary policy with CPI inflation targeting. The third essay empirically presents monetary and fiscal policy interactions in Thailand's SVECM suggested by a theoretical DSGE model developed from the previous essays. This essay shows that the DSGE-SVECM model can be supported by Thai data. A shock to monetary policy is effective with a lag. Government spending policy is also effective with a lag and some crowding-out effects on output. An adverse shock in tax policy unexpectedly stimulates the economy, indicating room for enhancing economic growth by relaxing revenue constraint. Monetary policy is mainly implemented to correct a consequence of a fiscal shock on inflation (and also the domestic and foreign shocks), while fiscal policy appears to counter a consequence of the monetary policy shock on output.
Book Synopsis Three Essays in Macroeconomics of Fiscal and Monetary Policies by :
Download or read book Three Essays in Macroeconomics of Fiscal and Monetary Policies written by and published by . This book was released on 2015 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Monetary and Fiscal Policy by : Choongryul Yang
Download or read book Essays on Monetary and Fiscal Policy written by Choongryul Yang and published by . This book was released on 2020 with total page 392 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation investigates the transmission of monetary and fiscal policy using both empirical and theoretical frameworks. Chapter 1 examines how the number of products sold by a firm affect its decisions regarding price setting and information acquisition. Using a firm-level survey from New Zealand, I show that firms that produce more goods have both better information about aggregate inflation and more frequent but smaller price changes. To characterize the implications of these empirical findings for the ability of monetary policy to stimulate the economy, I develop a new dynamic general equilibrium model with rationally inattentive multi-product firms that pay a menu cost to reset their prices. I show that the interaction of the menu cost and rational inattention frictions leads firms to adopt a wait-and-see policy and gives rise to a new selection effect: firms have time-varying inaction bands widened by their subjective uncertainty about the economy such that price adjusters choose to be better informed than non-adjusters. This selection effect endogenously generates a distribution of desired price changes with a majority near zero and some very far from zero, which acts as a strong force to amplify monetary non-neutrality. I calibrate the model to be consistent with the micro-evidence on both prices and inattention and find two main quantitative results. First, the new selection effect, coupled with imperfect information of price setters, leads to real effects of monetary policy shocks in the one-good version of the model that are nearly as large as those in the Calvo model. Second, in the two-good version of the model, as firms optimally choose to have better information about monetary shocks, the real effects of monetary policy shocks decline by 20%. In Chapter 2, joint with Hassan Afrouzi, we develop a general equilibrium flexible price model with dynamic rational inattention in which the slope of the Phillips curve is endogenous to systematic aspects of monetary policy. This Phillips curve is flatter when the monetary policy is more hawkish: rationally inattentive firms find it optimal to ignore monetary policy shocks when the monetary authority commits to stabilize nominal variables. Moreover, an unexpectedly more dovish monetary policy leads to a completely flat Phillips curve in the short-run and a steeper Phillips curve in the long-run. We also develop a tractable method for solving general dynamic rational inattention models in linear quadratic Gaussian setups. Chapter 3 asks whether the effectiveness of fiscal stimulus policy depends on the degree of economic income inequality. Many previous works about state-dependence of fiscal multiplier have focused on the degree of slack in the economy. In a surge of concerns about rising inequality of the U.S., I use rich historical state-level data on military procurement and inequality to find the relationship between the degree of income inequality and the local government spending multipliers. I show that the effects of government spending shocks on output are larger in low-inequality states than in high-inequality states. In contrast, I find no evidence that employment multipliers differ by the extent of income inequality. These results are robust to various specifications and other sources of inequality data. I also estimate aggregate output multipliers using historical military spending and income inequality data. I find the evidence that aggregate output multipliers are high when the income inequality is low. Thus, both local and aggregate multipliers are significantly affected by the degree of income inequality of an economy. I consider a variety of potential theoretical explanations for the results, including heterogeneous within-sector inequality and distributional effects of government spending shock, but find that none can adequately explain this finding
Book Synopsis Essays on Political Economy Using Dynamic General Equilibrium Models by : Lardo Stander
Download or read book Essays on Political Economy Using Dynamic General Equilibrium Models written by Lardo Stander and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This PhD thesis aims to look at four major issues in political economy and macroeconomics, namely, tax evasion, spirit of capitalism, globalisation and production structures involving delayed effects of inputs in dynamic general equilibrium models. These issues are of importance to any economy, but more so to an emerging economy like South Africa. The thesis will not only aim to obtain optimal policy responses in the presence of such distortions (deviations from the traditional Neoclassical world), but will also analyse the effects of these distortions on the growth and welfare of the economy. The thesis aims to have four separate papers based on dynamic general equilibrium (DGE) models: The first paper would aim to explain theoretically why tax evasion might depend on the level of financial development and the inflation rate in the economy. And then, it would try and test whether our proposed theoretical linkage holds in the data using panel data of 150 countries covering the period of 1980-2009. General equilibrium models that include the spirit of capitalism shows a positive relationship between growth and inflation aÌ22́Ơ0́− something unobserved in the data. The literature has tried to reconcile this theoretical and empirical mismatch by introducing human capital, cash-in-advance constraints applying to only specific kind of (non-productive) goods, etc. In the second paper, we, however, aim to show that a simpler way of achieving the negative inflationaÌ22́Ơ0́−growth relationship would be to introduce a banking system in the model subjected to cash reserve requirements. The third paper examines the effect of openness on economic growth, given a human capital accumulation function that captures the marginal benefit of knowledge spillovers in an economy. Two opposing effects are highlighted aÌ22́Ơ0́− one a positive effect from the increase in human capital on growth, the other a negative effect through an increase in seigniorage taxes aÌ22́Ơ0́− that would suggest there is a threshold value of openness, beyond which the impact of opening the economy even more becomes negative for economic growth. The fourth paper would aim to indicate that in the presence of lagged inputs, and especially lagged capital input, in the production structure of an economy, an inflation targeting country might experience aÌ22́Ơ¿3chaoticaÌ22́Ơ℗+ growth behaviour if the inflation target is set too high.
Book Synopsis Three Essays on Monetary and Fiscal Policy by : Ruoyun Mao
Download or read book Three Essays on Monetary and Fiscal Policy written by Ruoyun Mao and published by . This book was released on 2020 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of three essays studying the effects of monetary and fiscal policy. The first chapter, ''Policy Uncertainty and Government Spending Effects'' (joint with Shu-Chun Yang), studies government spending multipliers in a low nominal interest rate environment. Using a fully nonlinear New Keynesian model, this chapter shows government spending multipliers can decrease when 1) the initial debt-to-GDP ratio is higher, 2) the tax rate is higher, 3) debt maturity is longer, and 4) monetary policy is more responsive to inflation. When monetary and fiscal policy regimes can switch, policy uncertainty also reduces spending multipliers. If higher inflation induces a rising probability of switching to a regime where monetary policy actively controls inflation and fiscal policy raises future taxes to stabilize government debt, the multipliers can fall much below unity.The second chapter is a joint work with Zhao Han and Xiaohan Ma and studies how dispersed information impacts inflation, inflation expectations, and the Phillips curve by analytically solving a price-setting problem with nominal rigidity and informational frictions. The analytical representations enable us to recover the underlying parameters with data from the Survey of Professional Forecasters (SPF) and quantify the effects of dispersed information. The estimation results show dispersed information plays an important role in generating persistent inflation forecast errors and non-zero nowcast errors, as observed in the SPF data, but the effects of higher-order expectations on the Phillips curve are quantitatively small.The last chapter derives the optimal monetary policy when firms only have limited capacity to process information. The result shows marginal cost of attention is the key to determining the trade-off between the central bank's dual mandates. When the marginal cost is low, monetary policy aiming at stabilizing the output gap attracts attention from the private sector and generates inefficient price dispersion; Increasing the marginal cost of attention can eliminate the trade-off. A comparison between a rule-based policy and a discretionary policy confirms welfare gain from commitment. Firms pay extra attention to the policy signal when it is discretionary, which generates more price dispersion and harms welfare.
Book Synopsis The Theory of Money and Financial Institutions by : Martin Shubik
Download or read book The Theory of Money and Financial Institutions written by Martin Shubik and published by MIT Press. This book was released on 1999 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: This first volume in a three-volume exposition of Shubik's vision of "mathematical institutional economics" explores a one-period approach to economic exchange with money, debt, and bankruptcy. This is the first volume in a three-volume exposition of Martin Shubik's vision of "mathematical institutional economics"--a term he coined in 1959 to describe the theoretical underpinnings needed for the construction of an economic dynamics. The goal is to develop a process-oriented theory of money and financial institutions that reconciles micro- and macroeconomics, using as a prime tool the theory of games in strategic and extensive form. The approach involves a search for minimal financial institutions that appear as a logical, technological, and institutional necessity, as part of the "rules of the game." Money and financial institutions are assumed to be the basic elements of the network that transmits the sociopolitical imperatives to the economy. Volume 1 deals with a one-period approach to economic exchange with money, debt, and bankruptcy. Volume 2 explores the new economic features that arise when we consider multi-period finite and infinite horizon economies. Volume 3 will consider the specific role of financial institutions and government, and formulate the economic financial control problem linking micro- and macroeconomics.
Book Synopsis Three Essays on Monetary Policy in Economies with Financial Frictions by : Rahul Anand
Download or read book Three Essays on Monetary Policy in Economies with Financial Frictions written by Rahul Anand and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this dissertation is to understand the role of financial frictions in the transmission of shocks and their effect on the monetary policy transmission mechanism. To accomplish the task, we develop Dynamic Stochastic General equilibrium models with financial frictions. In the first chapter, we develop a model to analytically determine the appropriate price index to target in the presence of financial frictions (where a fraction of households are constrained to consume their wage income each period). The analysis suggests that in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting-i.e. a headline inflation target but with some weight on the output gap. These results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit constrained. In the second chapter, we develop a small open economy model with macrofinancial linkages. The model includes a financial accelerator - entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt - to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks to productivity, interest rates and net worth of firms. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and to assess the optimality of the current monetary policy rule. In the third chapter, we develop a small open economy New Keynesian model with financial frictions and an active banking sector for India. We find that the presence of a monopolistic banking sector with sticky interest rate setting attenuates the shocks. However, if the interest rates are flexible it results in the amplification of shocks. We also find that an unexpected reduction in bank capital can have a substantial impact on the real economy and particularly on investment. Use of nonmonetary policy tools result in greater volatility as compared to when central banks use traditional monetary tightening.
Book Synopsis Three Essays on Economic Modeling and Environmental Policy Evaluation by : Ziqian Gong (Ph. D. in applied economics)
Download or read book Three Essays on Economic Modeling and Environmental Policy Evaluation written by Ziqian Gong (Ph. D. in applied economics) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is composed of three chapters economic modeling and environmental policy evaluation. The first chapter explores the conflicts between preserving natural resources and economic activities. This paper establishes a model to estimate the threshold for the landowners to preserve the natural resource or do economic activities by taking the potential option value (from uncertainty and the irreversibility) into account when they need to decide between these two choices. By employing the real options theory with the numerical method, we could evaluate how the choices will be made towards this dilemma from the perspective of landowners. As an application, the result could provide a reliable and precise policy indication for the government to perform a more rational compensation policy toward natural resource protection than before. The second chapter investigates the impact of monetary policy on climate change. Climate change has been recognized as the most significant externality of today’s global economy. Current research has been predominantly focused on fiscal policy, which will be subject to the political environment. This paper establishes a dynamic general equilibrium model of a closed economy to find the optimal monetary policy under climate change to reduce carbon emissions and encourage the application of renewable energy. We evaluate how renewable energy firms, fossil fuel energy firms, and general goods production firms will respond to different monetary policies from the central bank. As an application, our results could provide a reliable policy tool for decision-makers to meet specific climate goals and encourage a transition to renewable energy. The third chapter provides a way to do the sustainability analysis of the Great Lakes region. The economic impact of climate change on key economic sectors has been studied for a long time. This study established an integrated energy- environmental-economic dynamic recursive computable general equilibrium model. Using this spatial computable general equilibrium (CGE) model, we show how to analyze environmental sustainability and individual well-being resulting from changes in the Great Lakes area’s complex economic and environmental systems. Our general equilibrium framework models interactions between human (economic, behavioral, social) and the environment and represent the interactions between local, regional, national, and global systems across space. This paper provides a tool to understand these linkages between economic agents and different sectors for the policymakers. So, they could use our work to assess the risk that may impact agriculture, energy, and manufacturing sectors under climate change and devise a related policy to maximize the welfare of its population and economy sustainably.
Book Synopsis Essays on Fiscal Policy and International Economics by : Tannous Kass-Hanna
Download or read book Essays on Fiscal Policy and International Economics written by Tannous Kass-Hanna and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis tackles the transmission of fiscal policy, with a focus on noisy news and its cross-border spillovers. It is composed of four chapters: In the first chapter, I provide an analytical characterization of the effects of noisy news shocks on the transmission of fiscal policy. Using a small-scale Dynamic Stochastic General Equilibrium (DSGE) model with capital accumulation and endogenous labor supply, this chapter shows how aggregate noise dampens the propagation of anticipated fiscal policy over the business cycle, thus reducing the fiscal multiplier. In the second chapter, I investigate the cross-border spillovers of fiscal stimuli policies - as conducted in the aftermath of the Great Recession - using a two-country New Keynesian DSGE model. Fiscal policy is assumed to be noisy: private agents receive an idiosyncratic noisy signal about future government spending shocks. This characterization of the model allows for the dispersion of individuals' expectations and captures one of the components of fiscal policy uncertainty. This chapter also shows a method for identifying the relevance of noise within fiscal policy news, and computes the average level of noise using the Survey of Professional Forecasters (SPF) dataset. By comparing the model simulations under the case of full information with that under noisy fiscal policy, this chapter illustrates how noise considerably weakens the international spillovers of fiscal policy. The third chapter tackles the domestic and cross-border quantitative effects of fiscal policy within a monetary union by building a two-country Heterogeneous Agents New-Keynesian (HANK) model in order to quantify the internal and external spillovers of fiscal policy on growth and inequality. Using the Household Finance and Consumption Survey (HFCS) data for Germany and the rest of Euro area, the model is calibrated to match wealth and income distributions. As a policy experiment, I take the case of the fiscal devaluation, that attempts to mimic competitive exchange rate devaluation. The results suggest that specific country policy has non-negligible impact on other country wealth distribution. Inequality transmits through two channels: (i) prices, which affect the household consumption level and split between foreign and home goods and, (ii) the interest rate on bonds, whose any change affects all the members in the monetary union. Finally, this chapter sheds the light on the importance of introducing heterogeneity at the international level in understanding the complex transmission of fiscal policy. In the final chapter, I augment a dynamic labor market general equilibrium model with search and matching frictions in the public and private sectors to include components of government spending: public wage bills, public investment, and transfers. The model elucidates the interactions between public and private sectors, and have numerous policy implications. I also conduct model simulations that show how a policy mix decreasing public employment and increasing public investment can boost the private sector and increase fiscal space in the long run.
Book Synopsis Three Essays on Monetary and Fiscal Policy by : Francesco Furlanetto
Download or read book Three Essays on Monetary and Fiscal Policy written by Francesco Furlanetto and published by . This book was released on 2006 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Optimal Monetary and Fiscal Policy in Dynamic Economies by : Arturo Anton
Download or read book Optimal Monetary and Fiscal Policy in Dynamic Economies written by Arturo Anton and published by LAP Lambert Academic Publishing. This book was released on 2009-09 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past twenty five years, fiscal and monetary authorities around the world have pursued policies roughly consistent with the insights from optimal monetary and fiscal policy. In the area of monetary policy, the modern consensus is to set policy rules so that nominal interest rates and inflation are low. In the area of fiscal policy, statutory corporate income tax rates have decreased sharply in OECD countries on average over time. Typically, theoretical models in the literature usually examine either monetary or fiscal policies in isolation, but not both of them simultaneously. This book presents two alternative dynamic, general equilibrium models where the prescriptions from optimal monetary and fiscal policies are simultaneously examined. These models offer some new insights on the interaction of such policies, especially in terms of their effects on household s welfare. A third chapter examines optimal fiscal policy in the context of preference reversals. This book should be especially useful for policymakers in the area of macroeconomics and researchers working in the field.
Book Synopsis Essays on Computation and Empirical Macroeconomics by : Seok Il Kang
Download or read book Essays on Computation and Empirical Macroeconomics written by Seok Il Kang and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter of the dissertation introduces a simulation-based adaptive algorithm from the computer engineering literature and applies it to models in economics. The algorithm aims to solve a general Markov decision process with a relatively large state space. The strategy is to construct a finite policy space of heuristic policies and adapt policies through simulated state variables. By updating and evaluating the performance of each policy, the algorithm provides convergence to the optimal value function and stationary distribution over policy space from the theoretical perspective. Application to solve the simple two-period Real Business Cycle model shows the performance is desirable within the feasible number of iterations and size of restricted policy space. The second chapter of the dissertation studies whether the data could reveal the necessity of the fiscal policy response for successful inflation-targeting monetary policy. Such necessity comes from the government debt valuation equation in which the market value of the debt equals the present value of primary surpluses in equilibrium. The Dynamic Stochastic General Equilibrium(DSGE) model estimation with the government debt valuation reports that in response to a monetary contraction, the market value of government debt falls, discount rates fall even more, while primary surpluses increase to compensate. This result suggests that the data reveals the necessity of fiscal backing. The third chapter of the dissertation revisits the same topic of the second chapter, using a VectorAutoRegression(VAR) analysis to examine how closely the data conforms to the theory. The VAR estimation shows that the data accounts for around 90% of the primary surplus adjustment dictated by theory, suggesting fiscal responses to monetary policy are sufficient to ensure successful inflation targeting by the central bank. Therefore, the result provides evidence that observed fiscal adjustments are sufficient for successful inflation-targeting.
Book Synopsis Three Essays on Policy Issues in International Macroeconomics by : Raghav Paul
Download or read book Three Essays on Policy Issues in International Macroeconomics written by Raghav Paul and published by . This book was released on 2018 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this dissertation is to investigate issues of importance in the formation of macroeconomic policy. In the first chapter, I explore the role of multinationals and intra-firm trade in exchange-rate pass-through into US imports. Conventional international macroeconomics models exploring exchange-rate pass-through, and informing monetary policy, often ignore transfer pricing. This results in predictions about firm-level pass-through that are at odds with the micro-level, empirical evidence. Motivated by the transaction level evidence that exchange-rate pass-through tends to be higher intra-firm than at arms-length, I construct a simple two-country, two-sector model of intra-firm and arms-length trade. Intra-firm trade is carried out by vertically integrated multinationals that compete in Bertrand fashion with regular exporters in the upstream sector. Under reasonable assumptions on pricing decisions and the cost function, my model is able to match the micro evidence. I add to the conventional literature by showing that along with exporters' shares, intra-firm trade and transfer pricing by multinationals are important factors for exchange rate pass-through. Furthermore, this model provides a framework to evaluate changes in monetary policy, as well as the interaction between the profit-shifting incentives of transfer pricing and changes in fiscal policy. In chapter two, we propose and quantify one potential explanation for the empirical evidence on the large productivity gaps between urban and agricultural sectors in developing countries. If residing in a village provides access to a network that effectively insures against income fluctuations, then households are less willing to live in the cities where labor income risk is uninsured. As a result, labor remains cheap in agriculture, and the incentives for switching to capital-intensive methods of farming remain weak. In order to understand the quantitative importance of this mechanism, we calibrate the model to Indian data and study an abstract policy-intervention: a provision of complete insurance against earnings risk in the city. The policy intervention decreases the urban-rural labor productivity gap by 64 percent. This effect comes about because of the 10 percent drop in agricultural share of employment, which encourages an inflow of capital and raises average farm size by 18 percent. In chapter three, we study the interaction between skilled immigration policy changes in the U.S. and the offshoring decision of domestic firms in the skilled services sector. Given the substitutability between immigrant and offshore workers (Ottaviano et al. (2013), Olney and Pozzoli (2018), Ottaviano et al. (2018)) and frictions imposed by the current skilled immigration policy, firms have an incentive to incur additional costs and hire labor offshore. To study this channel and the associated welfare impacts on skilled and unskilled domestic households, we build a two-country model with skilled immigration, offshore labor hiring, and trade in intermediate inputs. Monopolistically competitive firms in the domestic skill-intensive intermediate goods sector produce output using domestic and immigrant skilled labor, and skilled labor hired offshore. Firms optimally hire immigrant skilled workers subject to a policy imposed cap, a sunk hiring cost, and an exogenous probability of return to the foreign economy. In the calibrated model, firms adjust their production towards higher offshore labor hired following a stricter domestic immigration policy. We show that it is important to account for the role of offshoring when evaluating the welfare impacts of skilled immigration policy changes on domestic households: by ignoring firm adjustments in offshore labor hired, we would overestimate the wage (and welfare) gain to domestic skilled households after an immigration cap reduction. We also show that the welfare impacts depend on the profit distribution and the presence of labor market frictions. This analysis has two main contributions. First, as Ottaviano et al. (2018) note, much of the literature has focused on offshoring in the manufacturing sector and ignored an analysis of immigration and offshoring in the services sector. Given the growing importance of skill-intensive services trade, our paper takes a step in this direction. Second, unlike much of the literature, we study the interaction between immigration and offshoring in a dynamic general equilibrium model with a realistic skilled immigration policy setup.
Book Synopsis Three Essays on Fiscal and Monetary Policy by : Jonathan A. Rawls
Download or read book Three Essays on Fiscal and Monetary Policy written by Jonathan A. Rawls and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Unique Equilibrium in the Eaton-Gersovitz Model of Sovereign Debt by : Adrien Auclert
Download or read book Unique Equilibrium in the Eaton-Gersovitz Model of Sovereign Debt written by Adrien Auclert and published by . This book was released on 2015 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters on monetary and fiscal policy. The first chapter explores the importance of redistribution in explaining why monetary policy has aggregate effects on household consumption. I argue that traditional representative agent models focusing on substitution effects ignore a key component of the monetary policy transmission mechanism, which exists because those who gain from accommodative monetary policy have higher marginal propensities to consume (MPCs) than those who lose. I use a sufficient statistic approach to show that, provided households' elasticities of intertemporal substitution are reasonably small, redistributive effects can be as important as substitution effects in explaining the response of aggregate consumption to real interest rate changes in the U.S. My calibrated general equilibrium model predicts that, if U.S. mortgages all had adjustable rates, the effect of interest-rate changes on consumer spending would more than double and would be asymmetric, with rate increases reducing spending by more than cuts would increase it. The second chapter, joint with Matthew Rognlie, explains why a monetary union between countries (such as the Eurozone today) may lead to a stronger fiscal union. Since exchange rates can no longer adjust to offset shocks, the presence of nominal rigidities implies that fiscal risk-sharing becomes more valuable in a monetary union. As a result, countries in such a union are capable of overcoming their lack of commitment to fiscal transfers. However, inefficient equilibria without fiscal transfers remain possible. We derive implications for the optimal policy of the central bank when the fiscal union is under stress. The third chapter, also joint with Matthew Rognlie, studies the possibility that feedbacks between sovereign bond spreads and governments' desire to default may lead to multiple equilibria in sovereign debt markets. We show that such multiplicity does not exist in the infinite-horizon model of Eaton and Gersovitz (1981), a widely adopted benchmark for quantitative analyses of these markets. Our proof may be important to understand Euro government bond markets, and calls for renewed attention on the theoretical conditions that are needed for sovereign debt models to generate multiple equilibria.
Book Synopsis Essays on Structural Macroeconometrics by : Alberto Ortiz Bolaños
Download or read book Essays on Structural Macroeconometrics written by Alberto Ortiz Bolaños and published by . This book was released on 2009 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation explores the relationship between monetary policy and economic fluctuations within the context of dynamic stochastic general equilibrium (DSGE) models. I use Bayesian maximum likelihood methods to estimate the structural parameters of such models for the United States (U.S.) and 23 emerging market economies. Using these structural parameter estimates I conduct counterfactual experiments to explore the economic implications of alternative monetary policy regimes. The first chapter estimates an open economy monetary DSGE model of South Africa to characterize the South African Reserve Bank's (SARB) monetary policy rule. I find that the SARB has a stable monetary policy rule very much in line with those estimated for Australia, Canada, New Zealand, and UK. The distinguishing characteristics of the SARB's rule relative to these other four countries are a somewhat larger weight on output and a very low weight on the exchange rate. Relative to other 20 emerging market economies, the policy reaction function of the SARB appears to be much more stable. The second chapter analyzes the fiscal and monetary policy responses and their effects on output in a set of 22 external financial crisis episodes occurred since 1990. I find evidence that those countries that tightened monetary and fiscal policy during these crises experienced larger output contractions than countries that followed a looser policy stance. The third chapter uses a monetary DSGE model with credit market imperfections to estimate the role of credit market shocks and monetary policy in U.S. business cycles. The estimated model captures much of the historical narrative regarding the conduct of monetary policy and developments in financial markets that led to episodes of financial excess and distress over the last two decades. The estimation suggests that credit market shocks are an important factor behind economic fluctuations accounting for 15% of the variance in real output since 1985. Monetary policy is also an important force behind real output fluctuations explaining 12.5% of its variance.
