This dissertation is a collection of three essays on macroeconomics, examining the sources of business cycles. In particular, we are interested in understanding how shocks propagate over the business cycle in both closed economy and open economy settings. The common approach we take in these chapters is to use both theory and data in a structural estimation based on a dynamic stochastic general equilibrium model. In the first chapter, motivated by the correlation of business cycles across countries, we provide a new empirical evidence about the role of common shocks in business cycles for small open economies. Specifically, we conduct a structural estimation of a small open economy real business cycle model featuring a realistic debt adjustment cost and common shocks. Using a novel dataset for 17 small developed and developing countries between 1900 and 2006, we find that common shocks are a primary source of business cycles, explaining nearly 50% of the output fluctuations over the last 100 years in small open economies. The estimated common shocks capture important historical episodes such as the Great depression, the two World Wars and the two oil price shocks. Moreover, these common shocks are important for not only small developed countries but also developing countries. We point out the importance of our structural approach in identifying the sizable role of both productivity and other common shocks such as interest rate premium shocks. The reduced form dynamic factor model approach in the previous literature, which often assumes one type of common component, would predict only a third of the contribution estimated in the structural model. In the second chapter, we focus on the transmission from one country to another through international trade. First, we argue that while we observe substantial business cycle correlation across countries, especially among developed economies, most existing models are not able to generate strong transmission of shocks endogenously through international trade. In the framework of structural model, we show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices. We augment a standard international macroeconomic model to incorporate three key features: a weak short run wealth effect on labor supply, variable capital utilization, and imported intermediate inputs for production. This model can generate large and significant endogenous transmission of technology shocks through international trade. We demonstrate this by estimating the model using data for Canada and the United States with quasi-Bayesian methods. We find that this model can account for the substantial transmission of permanent U.S. technology shocks to Canadian aggregate variables such as output and hours documented in a structural vector autoregression. Transmission through international trade is found to explain the majority of the business cycle comovement between the United States and Canada while exogenous correlation of technology shocks is not important. In the third chapter, we turn to the sources of business cycles in a closed economy setting and analyzes the effects of news shocks, which are found to be an important driver of business cycles in the U.S. in the recent literature. The innovation of this chapter is that we use data on expectations to inform us about the role of news shocks. This approach exploits the fact that news shocks cause agents to adjust their expectations about the future even when current fundamentals are not affected, therefore, data on expectations are particularly informative about the role of news shocks. Using data on expectations, we estimate a dynamic, stochastic, general equilibrium model that incorporates news shocks for the U.S. between 1955Q1 and 2006Q4. We find that the contribution of news shocks to output is about half of that estimated without data on expectations. The precision of the estimated role of news shocks also greatly improves when data on expectations are used. Moreover, the contribution of news shocks to explaining short run fluctuations is negligible. These results arise because data on expectations show that changes in expectations are not large and do not resemble actual movements of output. Therefore, news shocks cannot be the main driver of business cycles.

This dissertation examines women's choices regarding reproduction, sexual activity, and marriage in an economic framework. The first two chapters address the impact of the "biological clock" on women's marriage market outcomes, and thus its implications for career decisions. Women's ability to have children declines sharply with age. This fecundity loss may negatively affect marital prospects for women who delay marriage to make career investments. In chapter 1, I incorporate depreciating "reproductive capital" into a frictionless matching model of the marriage market, where high-skilled women are likely to make pre-marital career investments. When the fertility costs of these investments are large relative to the income gains, the model predicts non-assortative matching at the top of the income distribution, with the highest-earning men forgoing the highest-earning women in favor of poorer, but younger, partners. However, if women's incomes rise or desired family size falls, high-skilled women may be able to compensate their partners for lower fertility, leading to assortative matching. Historical patterns in US Census data are consistent with these predictions. In the 1920-1950 birth cohorts, women with post-bachelors education match with lower-income spouses than women with only college degrees, while in recent years this pattern has reversed. The model relies on men internalizing their partners' expected fertility when choosing a mate. In chapter 2, I test this premise using an online experiment where age is randomly assigned to dating profiles, to control for other factors (such as beauty) that change with age in observational data. I find that men, in contrast to women, have a strong preference for younger partners, but only when they have no children of their own and are aware of the age-fertility tradeoff. Chapter 3 addresses another decision, protecting against unintended pregnancy, in the context of the introduction of a new technology that can prevent pregnancy after intercourse. Emergency contraception (EC) can prevent pregnancy after sex, but only if taken within 72 hours of intercourse. Over the past 15 years, access to EC has been expanded at both the state and federal level. We find that expanded access to EC has had no statistically significant effect on birth or abortion rates. Expansions of access, however, have changed the venue in which the drug is obtained, shifting its provision from hospital emergency departments to pharmacies. We find evidence that this shift may have led to a decrease in reports of sexual assault.

The topic of my dissertation is to understand the sources of business cycles. In particular, using structural estimation, I quantitatively investigate different types of shocks that propagate within a country (Chapter One) and that cause business cycle comovement across countries (Chapter Two and Three). In the first chapter, Wataru Miyamoto and I propose the use of data on expectations to identify the role of news shocks in business cycles. News shocks are defined as information about future fundamentals that agents learn in advance. Our approach exploits the fact that news shocks cause agents to adjust their expectations about the future even when current fundamentals are not affected. Using data on expectations, we estimate a dynamic, stochastic, general equilibrium model that incorporates news shocks for the U.S. between 1955Q1 and 2006Q4 using Bayesian estimation. We find that the contribution of news shocks to output is about half of that estimated without data on expectations. The precision of the estimated role of news shocks also greatly improves when data on expectations are used. Although news shocks are important in explaining the 1980 recession and the 1993-94 boom, they do not explain much of other business cycles in our sample. Moreover, the contribution of news shocks to explaining short run fluctuations is negligible. These results arise because data on expectations show that changes in expectations are not large and do not resemble actual movements of output. Therefore, news shocks cannot be the main driver of business cycles. Chapters Two and Three focus on the driving forces of business cycles in open economies. We start Chapter Two with an observation that business cycles are strongly correlated across countries. We document that this pattern is also true for small open economies between 1900 and 2006 using a novel data set for 17 small developed and developing countries. Furthermore, we provide a new evidence about the role of common shocks in business cycles for small open economies in a structural estimation of a real small open economy model featuring a realistic debt adjustment cost and common shocks. We find that common shocks are a primary source of business cycles, explaining nearly 50\% of output fluctuations over the last 100 years in small open economies. The estimated common shocks capture important historical episodes such as the Great depression, the two World Wars and the two oil price shocks. Moreover, these common shocks are important for not only small developed countries but also developing countries. We point out the importance of our structural approach in identifying several types of common shocks and their sizable role in small open economies. The reduced form dynamic factor model approach in the previous literature, which often assumes one type of common component, would predict only a third of the contribution estimated in the structural model. Chapter Three further our understanding of the business cycle comovement across countries by investigating the transmission mechanism of shocks across countries. Our reading of the literature indicates that even though business cycles are correlated across countries, existing models are not able to generate substantial transmission through international trade. To the extent that business cycles are correlated across countries, it is because shocks are correlated across countries. We show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices. We augment a standard international macroeconomic model to incorporate three key features: a weak short run wealth effect on labor supply, variable capital utilization, and imported intermediate inputs for production. This model can generate large and significant endogenous transmission of technology shocks through international trade. We demonstrate this by estimating the model using data for Canada and the United States. We find that this model can account for the substantial transmission of permanent U.S. technology shocks to Canadian aggregate variables such as output and hours documented in a structural vector autoregression. Transmission through international trade is found to explain the majority of the business cycle comovement between the United States and Canada while exogenous correlation of technology shocks is not important.

This dissertation contains three essays in Macroeconomics and Corporate Finance. The first essay deals the implications of inventory investment for news-driven business cycles. The second essay looks at the connection between debt structure and investment at the firm level. The third essay proposes a macroeonomic model where firms choose simultaneously the composition and scale of their debt.

This dissertation is a collection of three essays in Applied Macroeconomics, where I analyze the role of volatility in the economy, as well as the different macroeconomic effects of time varying policy. In order to do that, I estimate three different models that incorporate novel features that allow me to isolate those effects. The models are estimated using recently developed Bayesian techniques (Hamiltonian Monte Carlo) that allow me to consider non linearities and interesting economic features that could not have been considered in the past. In the first essay, I estimate the evolution of fiscal multipliers in the postwar era, using a time varying parameter vector autorregressive model that includes stochastic volatility. First, I find that there is significant evidence that the multiplier has changed over time, once we control for changes in volatility, but that there is no empirical support to claim that the fiscal multiplier is bigger during a recession even if we consider different components of government spending, as some recent literature has suggested. Second, I show that not accounting for stochastic volatility in the model can seriously affect both the size and the uncertainty around the fiscal multiplier. Finally, I show that government spending was extremely ineffective during the Great Recession of 2008, but taxes and transfer payments played an important role to stabilize the economy. In the second essay, I consider the contribution of changes in the conduct of Monetary Policy to the so called "Great Moderation" (that is, the reduction of the volatility of several macroeconomic variables after 1985). I argue that a better monetary policy conduct can be responsible for the Great Moderation and the stabilization of the economy after the high inflation episodes of the 1970s, contrary to the findings of other authors. The estimation is based on a model that incorporates time varying responses of monetary policy to changes in inflation and output, and that, as a novelty, estimates the relationship between those responses and the volatility of those variables. There are two main findings. First, I show that there is evidence of a change in the conduct of monetary policy during the sample period. Second, using counterfactual exercises, I find that after Paul Volcker is appointed as Chairman of the Federal Reserve, the economy would have been more volatile if the conduct of monetary policy would not have changed. Moreover, the economy would have exhibit less uncertainty in the Pre Volcker period if the policy conducted afterwards would have been in place. In the last essay, I propose a framework and a model consistent estimation approach for the analysis of the dynamic consequences of changes in volatility. The proposed model is a Vector Autoregression in which time varying volatility has a first-order impact on the observable variables. The volatility process is estimated within the model, and therefore, the proposed estimation approach does not rely on proxy measures of aggregate uncertainty as it has been generally done in the literature extant. Estimates of the proposed model using data from the United States show important quantitative and qualitative departures from estimates incorporating non model consistent measures of volatility. In particular, an increase in overall volatility similar to the one experienced during the Great Recession is predicted to have a strong negative and persistent impact on key macroeconomic indicators, including output, investment and the unemployment rate, and to worsen financial conditions. Moreover, a decomposition of the estimated volatility time series shows that fiscal volatility shocks are associated with important deflationary pressures, have a strong crowding out effect on investment and increase the cost of borrowing. Finally, the estimated model predicts that volatility has an asymmetric effect on the economy so that only rare shocks matter.

This dissertation uses individual-level and aggregate data to study topics in development economics. The first chapter analyzes the impact of Chinese competition on Mexican labor markets. Over the past two decades, the growth of manufacturing in China has significantly impacted international trade. This paper explores how the dramatic rise in Chinese manufacturing exports influences employment in Mexico through product competition in the US export market. Following Autor, Dorn, and Hanson (2013), we compare employment outcomes for formal workers living in different Mexican labor markets to changes in Chinese import competition from 1993 to 2003. We find that exposure to Chinese competition has negative labor market effects for formally employed Mexican workers. In particular, a formally employed individual working in a labor market that experiences the average change in exposure to Chinese competition is 2.0 to 2.7 percentage points less likely to be formally employed in five years. The second chapter examines the under-reporting of workers wages in Mexico. Non-compliance of firms with tax regulations is a major constraint on state capacity in developing countries. We focus on an arguably under-appreciated dimension of non-compliance: under-reporting of wages by formal firms to evade payroll taxes. We compare two sources of wage information from Mexico --- firms' reports of individuals' wages to the Mexican social security agency and individuals' responses to a household labor-force survey --- to investigate the extent of wage under-reporting and how it responded to an important change in the social security system. We document that under-reporting by formal firms is extensive, and that compliance is better in larger firms. Using a difference-in-differences strategy based on the 1997 Mexican pension reform, which effectively tied pension benefits more closely to reported wages for younger workers than for older workers, we show that the reform led to a relative decline in under-reporting for younger workers. The empirical patterns suggest that giving employees incentives and information to improve the accuracy of employer reports can be an effective way to improve payroll-tax compliance. The third chapter studies the effect of trade liberalization on fertility, sex ratios, and infant mortality in India. We compare women and births in rural Indian districts more or less exposed to tariff cuts. For low socioeconomic status women, tariff cuts increase the likelihood of a female birth and these daughters are less likely to die during infancy and childhood. On the contrary, high-status women are less likely to give birth to girls and their daughters have higher mortality rates when more exposed to tariff declines. Consistent with the fertility-sex ratio trade-off in high son preference societies, fertility increases for low-status women and decreases for high-status women. An exploration of the mechanisms suggests that the labor market returns for low-status women (relative to men) and high-status men (relative to women) have increased in response to trade liberalization. Thus, altered expectations about future returns from daughters relative to sons seem to have caused families to change the sex-composition of and health investments in their children.

This thesis explores a Bayesian approach for four types of panel data models with interactive fixed effects: linear, dynamic tobit, probit, and linear with a nonhomogeneous block-wise factor structure. Monte Carlo simulation shows good estimation results for the linear dynamic panel data model with interactive fixed effects, even with the correlation between covariates and factor loadings and with multidimensional interactive fixed effects. This approach is applied to NLSY79 data with a balanced panel of 1831 individuals over 16 years (from 1984 to 2008) to study Mincer's human capital earnings function with unobserved skills and returns. The Mincer regression model is applied to the whole sample and to subgroups based on race and gender. This thesis also proposes estimation methods for tobit and probit models with interactive fixed effects. A data augmentation approach by Gibbs sampling is used to simulate latent dependent variable and latent factor structure, and I achieve good estimation results for both coefficient and factor structure. This thesis also proposes a new type of model: the panel data model with a nonhomogeneous block-wise factor structure. Extensive literature exists in macroeconomics and finance on block-wise factor models; however, these block-wise factor structures are homogeneous, and the subjects do not change the blocks that they belong to. For example, in research about how business cycle variations are driven by different types of shocks related to regional or country-specific events, the macroeconomic variables of the United States will always belong to the North American block. However, we have a nonhomogeneous block-wise factor structure inside wage dynamics: as workers have different returns, or may be subjected to different productivity shocks for their unobserved skills in different regions (blocks), the regions where workers reside could also change over time. According to our balanced data set from NLSY79 for more than 20 years, 306 of 1831 (16.72%) workers moved across regions during the survey period, which cannot simply be ignored. This thesis proposes a set of identification conditions and estimation methods for this new type of model, and the Monte Carlo simulation yields very good estimation results. I also apply this model to study the NLSY79 balanced panel data, and find that the Northeast and the South have similar regional value patterns, while the Midwest and the West share similar patterns. Two chapters using a frequentist approach are also included in the thesis. The commentary on Hu (Econometrica 2002) shows that certain alternative sets of moment conditions in that paper are invalid to estimate censored dynamic panel data models. The other chapter focuses on how model selection procedures prior to actual data analysis will affect the properties of post-model-selection inference. The calculation of conditional size indicates that this correlation would interact with the distance between two competing non-nested models and generate conditional size distortion even asymptotically. A new second stage statistic that is asymptotically independent of the first stage Vuong statistic is proposed, and it performs better than the normal t statistic.

This dissertation comprises of three essays in open economy macroeconomics. The main contribution in these essays lies in incorporating insights from the literature on international trade in macroeconomic models to enhance their ability to explain transmission of business cycle fluctuations across countries. The motivation for this research comes from the observation that international trade plays a key role in open economy macroeconomic models, and is the primary (and in some cases the only) channel through which shocks can be transmitted across countries. My doing so, the open economy macro literature has given a central role to international trade in explaining business cycle comovement across countries. However, even in the most sophisticated open economy models, international trade continues to be modeled in a highly stylized manner, and key insights and characteristics specific to international trade are ignored. These essays explore the role of two such features in international trade which have received widespread empirical support in the trade literature but continue to be overlooked as far as the macro literature in concerned-namely trade finance (or the dependence of international trade on external finance) and trade in intermediate inputs and re-export of imported goods. Chapter 1 explicitly incorporates a role for international trade finance by modeling the link between external finance and the cost channel of monetary policy in a two country new keynesian Dynamic Stochastic General Equilibrium (DSGE) model and shows that trade finance affects the propagation of all shocks that are known to be important drivers of business cycles in advanced economies. It further shows that the degree and extent to which trade finance affects the propagation of shocks depends critically on certain key parameters that characterize the external sectors of countries including the degree of flexibility of import prices. Motivated by the theoretical insights gained from chapter 1, chapter 2 takes a more quantitative approach by estimating the two country model with trade finance using data from the US and Eurozone (EZ) for the great moderation period. Apart from providing parameter estimates for the critical parameters identified in chapter 1, it documents how bayesian model comparison exercises provide evidence in favor of models incorporating a role for trade finance, and that trade finance matters more for spillover effects of shocks rather than the effects on the respective country of origin. Chapter 3 (joint work with Zhi Wang and Shang-Jin Wei) examines the issue of measurement of competitiveness as defined by the real effective exchange rate and argues in favor of accounting for the distinction between intermediate and final goods trade flows and the need for considering sector level heterogeneities. On the theoretical front, it provides a multi-country multi-sector model which is solved and used to define competitiveness at both the country and country-sector level. On the empirical front, it provides estimates of elasticity of substitution across different countries, sectors and categories (production inputs vs final consumption goods) and compiles an annual database of real effective exchange rates for 40 countries and 35 sectors within each country for 1995-2009.

This dissertation determines how to improve the financial management of natural disaster risks through better design of risk transfer instruments and insurance. By analyzing theoretical models, field surveys and numerical simulations, innovative risk transfer mechanisms that lead to improvements in welfare are constructed and examined. The chapters of my dissertation contribute to a growing field of academic research concerning how to manage natural disaster and extreme weather risks in the face of climate change. In designing policies for the changing environment, uncertainty and risk play a large role. This dissertation recognizes and harnesses these uncertainties to create a framework for risk transfer in the case of extreme events.

This dissertation contains three essays on macro-finance and international finance. In Chapter 1, Richard Clarida and I study the term structure of US interest rates using observable macro factors as inputs to a Taylor-type rule that can account for the time path of the short term interest rate. Using a standard essentially affine model, we build directly on the pioneering work of Ang and Piazzesi, Rudebusch and Wu, and others but extend their analysis to a framework in which all macro factors are observable. We focus on the period since 1997 when US inflation expectations have been well anchored and inflation indexed bonds - which provide useful information on expected inflation and expected future real interest rates - have been issued by the US government. In contrast to many previous studies that - of necessity - focus on earlier periods when low frequency movements in expected inflation appeared to dominate, in our sample variation in expected inflation at longer horizons is modest and the yield curve is importantly driven by the evolution of the `neutral' real policy rate as estimated by Laubach and Williams. Deviations of the policy rate from the Taylor rule path are found to have a marked impact at the front end of the yield curve. In any factor model yields are linear combinations of factors, and principal components, are linear combinations of yields. In our model, we can solve explicitly for the mapping from macro factors to traditional `level' `slope' and `curvature' factors. Our model exhibits surprising robustness in a post-crisis out-sample study. We also propose a novel, but simple regression based approach to generate initial values - required to implement the non-linear GMM estimation technique we use - for the affine model's deep structural parameters. In both Chapters 2 and 3, I study the portfolio problem associated with currency carry trade. In Chapter 2 specifically, I analyze the carry trade threshold portfolios. I prove that under general assumptions, the optimal mean-variance portfolio gives a higher weight to carry trade having larger forward premium. I then proposes a more robust version of the mean-variance optimal portfolio: the threshold portfolio, where I construct carry trade threshold portfolios using thresholds that depend upon forward premium. And I show that empirically, up to the optimal threshold value, higher-threshold portfolios outperform lower-threshold portfolios. The financial performance then decreases, as the threshold goes higher. I model the threshold effect in a random-walk model of exchange rates. The model predicts the optimal threshold value and the relative gain of an optimal threshold portfolio. The model is calibrated, and the predictions are tested. I also discuss the threshold effect in a model which features global risk factor. Following Jurek (2014) and using crash-hedged portfolios, I test the crash risk explanation for outperformance of threshold portfolio, I show that the crash risk premium can explain around 25 percent of the excess performance of higher threshold portfolios. In Chapter 3, I study the hedging problem associated with currency carry trade. I propose theoretical frameworks and divide hedging instruments into three categories: insurance, technical rule, and the market neutral strategy. I then propose and empirically test four hedging strategies: FX options strategy, VIX future strategy, "Stop-loss" rule and CTA strategy. Based upon empirical evidence from 2000 to 2012, I find that CTA is the preferred hedging strategy because it upgrades both return and volatility. The stop-loss strategy reduces risk but fails to affect return. Both the currency options strategy and the VIX future strategy offer good hedges against tail risk, while also reducing volatility. Unfortunately they are costly to implement. I also compare the VIX strategy to various currency option strategies, to determine if VIX is a cheaper form of systematic insurance as compared to the currency options. With respect to CTA, I study its risk-return aspect, I also provide a new methodology for replicating the returns of the benchmark CTA index.