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This Ph.D. dissertation contains three essays on Open Economy Macroeconomics. The first chapter investigates monetary policy problem of emerging economies known as the Tosovsky Dilemma, which says that when an emerging economy experiences a boom associated with capital inflows and exchange rate appreciation, it is not appealing to tighten monetary policy to counteract inflationary pressures as this might further exacerbate inflows and appreciation. In the chapter, I develop an intertemporal general equilibrium framework of the monetary transmission mechanism to investigate how this dilemma shapes optimal monetary policy. In the model, financing is decentralized and collateralized by physical capital, which is nontradable and costly to adjust over time. The Dilemma materializes when there is a positive external shock that increases capital inflows and generates real exchange rate appreciation and inflation in the nontradable sector, all of which are inefficient. Contrary to conventional wisdom, the Ramsey optimal monetary policy calls for lowering the policy rate in such circumstances in order to suppress capital inflows and appreciation, while accepting inflation in the nontradable sector. If the capital flows can be controlled by an additional policy instrument, then optimal policy becomes countercyclical, as in the conventional framework without the Dilemma. The second and third chapters focus on dynamics of labor shares over the business cycles in small open economies. The second chapter uses annual labor shares data of 40 years for 35 small open economy countries and finds three empirical regularities. First, labor shares are not constant, but they are as volatile as output. Second, labor shares in emerging economies are about twice as volatile as labor shares in advanced economies. Third, labor shares in emerging economies are procyclical on average, whereas they are countercyclical in most advanced economies. The empirical findings offer a skeptical view of the conventional beliefs about the unitary elasticity of substitution between capital and labor, and countercyclical labor shares in the short-run. The third chapter paper builds a theoretical model which can comprehensively explain the empirical findings in the second chapter. The model is a dynamic stochastic general equilibrium, small open economy, composed of tradable and nontradable sectors with CES production functions. In the model, there are two margins of labor share fluctuations over the business cycles, which are fluctuations of the capital-labor ratio in each sector and fluctuations in the relative value of sectoral production. The estimated models show a countercyclical labor share and volatility near that of output in Canada, and procyclical and excessively volatile labor share in Mexico, all of which are in line with the data.

Zhu, Tingting. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 21-23). / Abstract also in Chinese. / Chapter Chapter 1 --- Introduction --- p.1 / Chapter Chapter 2 --- Literature Review and Background --- p.2 / Chapter 2.1 --- The literature on price stickiness --- p.2 / Chapter 2.2 --- The literature on monetary policy --- p.3 / Chapter Chapter 3 --- Model and Data --- p.4 / Chapter 3.1 --- The model --- p.4 / Chapter 3.2 --- Model estimation --- p.6 / Chapter 3.3 --- Data --- p.7 / Chapter Chapter 4 --- Price Fluctuations in Disaggregated Data --- p.7 / Chapter 4.1 --- Sources of fluctuations and persistence in price series --- p.8 / Chapter 4.1.1 --- China inflation volatility --- p.8 / Chapter 4.1.2 --- China inflation persistence --- p.10 / Chapter 4.1.3 --- India inflation volatility --- p.10 / Chapter 4.1.4 --- India inflation persistence --- p.11 / Chapter 4.2 --- Effects of macroeconomic and sector-specific shocks on price --- p.12 / Chapter 4.2.1 --- China sectoral price response to various shocks --- p.12 / Chapter 4.2.2 --- India sectoral price response to various shocks --- p.13 / Chapter 4.3 --- Urban and rural price responses to various shocks --- p.13 / Chapter Chapter 5 --- Effects of Monetary Policy Shocks --- p.15 / Chapter 5.1 --- Effects of monetary shocks in China --- p.15 / Chapter 5.2 --- Effects of monetary shocks in India --- p.17 / Chapter Chapter 6 --- Conclusion --- p.18 / Bibliography --- p.21 / Table 1: China volatility and persistence of monthly inflation series --- p.24 / Table 2: China cross-sectional correlations of various statistics --- p.25 / Table 3: India volatility and persistence of monthly inflation series --- p.26 / Table 4: India cross-sectional correlations of various statistics --- p.27 / Table 5: Response of price series to a monetary policy shock in China --- p.28 / Table 6: Response of price series to a monetary policy shock in India --- p.29 / Figure 1: China sectoral price responses to shocks (Base Rate as the monetary instrument)…… --- p.30 / Figure 2: China sectoral price responses to shocks (M2 as the monetary instrument) --- p.31 / Figure 3: India sectoral price responses to shocks (Bank Rate as the monetary instrument) --- p.32 / Figure 4: India sectoral price responses to shocks (M3 as the monetary instrument) --- p.33 / Figure 5: China urban and rural CPI responses to various shocks --- p.34 / Figure 6: India urban and rural CPI responses to various shocks --- p.35 / Figure 7: China impulse responses to an identified monetary shock (Base Rate) --- p.36 / Figure 8: China impulse responses to an identified monetary shock (M2) --- p.37 / Figure 9: China sectoral price responses to monetary shocks with long-run restriction (Base Rate) --- p.38 / Figure 10: China sectoral price responses to monetary shocks with long-run restriction (M2) --- p.39 / Figure 11: India impulse responses to an identified monetary shock (Bank Rate) --- p.40 / Figure 12: India impulse responses to an identified monetary shock (M3) --- p.41 / Figure 13: India sectoral price responses to monetary shocks with long-run restriction (Bank Rate) --- p.42 / Figure 14: India sectoral price responses to monetary shocks with long-run restriction (M3) --- p.43 / Appendix --- p.44

This thesis examines the problems posed by Japan???s recent macroeconomic experience for conventional monetary policy theory and practice. Japan???s experience with deflation and the zero lower bound for nominal official interest rates is placed in the context of neo-Wicksellian and monetarist interpretations of the monetary policy transmission mechanism. The neo-Wicksellian approach to the zero bound problem is shown to suffer significant limitations in view of Japan???s experience, while a monetarist interpretation of the transmission mechanism is shown to be more robust. The thesis considers the role of the official interest rate and the money base in vector autoregression models of the Japanese economy, finding that the economy became less amenable to effective stabilisation by monetary policy from the early 1990s onwards. A new approach to estimating a neo-Wicksellian monetary policy rule for the Bank of Japan is proposed and the robustness of the parameters of this rule determined. The thesis motivates a role for the money base in the determination of real output and inflation. A policy rule in the growth rate of the nominal money base is estimated and the stability of its parameters with respect to a hypothesised structural break and changes in the governorship of the Bank of Japan is considered. Aggregate demand and supply specifications for the Japanese economy are estimated that show a distinct role for the money base that is independent of the official interest rate. These specifications are extended to develop a model of the Japanese economy. The model is distinctive in incorporating both neo-Wicksellian and monetarist views of the monetary policy transmission mechanism. The macroeconomic stabilisation properties of various interest rate and money base growth rules are compared in the context of the model, using stochastic simulation methods. In particular, a policy rule in the growth rate of the nominal money base with the nominal official interest rate set to zero is simulated and shown to have macroeconomic stabilisation properties that compare favourably to conventional interest rate rules. The thesis concludes that the neglect of money in contemporary monetary policy theory and practice is mistaken in view of Japan???s recent macroeconomic experience.

Originally presented as the author's thesis, Hochschule für Wirtschafts- und Sozialwissenschaften, St. Gall. / Bibliography: p. xvii-xxviii.

Thesis (Ph. D.)--University of Washington, 2003. / Vita. Includes bibliographical references (leaves 82-87).

Why do politicians change the legislation governing the central bank to give this institution operational independence in the setting of monetary policy. This thesis examines the political debates over central bank independence in New Zealand, Canada, Australia and New Zealand during the 1980s and 1990s. These cases were selected due to the variation in their levels of central bank independence, while holding key institutional variables constant. Four hypotheses are suggested by the political economy literature to explain the timing of this legislative change: the need to signal creditworthiness to international financial markets, in response to lobbying by domestic interest groups opposed to inflation, in response to proposals from an epistemic community of monetary experts or based on the self-interest of politicians concerned with re-election. The case studies find that politicians delegate to the central bank when this reform has the consensus support of an epistemic community of monetary experts, and a key politician is willing to champion the legislation through parliament. This epistemic community has increased influence during periods of economic uncertainty, such as following a financial crisis. A key politician is motivated to support this reform due to ideological or electoral reasons. This reform was facilitated by political institutions characterised by few checks and balances that concentrated power in the hands of the executive and offered few obstacles to changing the central bank's statute. Central bank independence was rejected in the cases where the epistemic community did not hold a consensus on the need for reform, and politicians saw only electoral risks from changing the central bank's statute. This study finds that politicians retain room to manoeuvre despite the rise of financial globalisation.

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The essay investigates if one monetary policy goal could be sufficient to stabilize both inflation and real economic fluctuations. The results indicate that one policy goal could be sufficient, nonetheless when empirically comparing Sweden and Canada’s monetary policy and the market outcome in these markets.

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