This thesis contains three chapters. The first two chapters are essays on monetary economics. The last chapter is an essay on general equilibrium asset pricing. In chapter 1, I study the behavior of disaggregated prices in response to economic shocks. I suggest a production chain model with nominal rigidities to replicate some stylized facts about data. I argue, first, that the input-output linkages in production can create heterogeneity in the response of sectoral prices to aggregate shocks. Second, a realistic calibration of this multi-sector model to the US data can create 5 times more real rigidities in response to nominal shocks, compared to an equivalent homogeneous economy with intermediate inputs. Finally, the model implies that upstream industries would respond faster to aggregate shocks than downstream industries. In chapter 2, I study the effect of imperfect commitment of a central bank on inflationary outcomes. I present a model in which monetary authority is a committee with churning of members who have finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this set-up gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that lowering the churning rate or increasing the tenure time improves welfare. Chapter 3 (joint work with Aytek Malkhozov) focuses on the asset pricing implications of a real-business-cycle model with recursive preferences and a general shock structure that allows for news shocks. We show that introducing recursive preferences and anticipated shocks into a canonical DSGE model can produce large premia and low risk-free rates without compromising the model's ability to fit the key macroeconomic variables. We illustrate how this class of dynamic stochastic general equilibrium (DSGE) models can be solved using higher order perturbation methods.

This thesis examines the role of public policy, with specific reference to public sector pricing, in an economy where all markets do not necessarily clear. The discussion focuses on three non-Walrasian market situations termed, in the nomenclature of Malinvaud and others, as: Keynesian Unemployment, Classical Unemployment and Repressed Inflation. In chapter 1, there is a brief summary of the literature in this area. The framework of the model used, is described in some detail in chapter 2. In chapter 3, the role of the traditional instruments of taxation and public expenditures is analysed in the framework of the present model. The "non-traditional" instrument of public sector pricing throws up some interesting results. Among other things, my results indicate that public sector pricing can be designed to effectively influence the level of aggregate income and employment. The method of financing the government deficit is the subject of chapter 4. My results indicate that the bond-financed multiplier of Blinder and Solow or Tobin and Buiter is simply a special case of the multiplier in my model, when the public sector enterprise prices its output at marginal cost. Equally important, I establish that the Blinder-Solow result "the long-run multiplier for bond-financed deficit spending exceeds that for money-financed deficit spending" is not necessarily true. Furthermore, the stability and convergence properties of the system are shown to rest on the choice of public sector prices. The characterisation of optimal public sector prices is dealt with in chapters 5 and 6, viewed from a different perspective in each of the chapters. In chapter 5, optimal pricing rules are derived which are explicit and readily operational. Finally, in chapter 6, we characterise the dynamic time-path of optimal public sector prices.

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This thesis consists of three essays at the intersection of macroeconomics and corporate finance. The broad theme that links the three chapters is the study of how endogenous borrowing constraints that affect firms and financial intermediaries influence aggregate investment. In Chapter I, the existing theoretical framework studying how financial constraints in firms may make economies more sensitive to shocks (the 'financial accelerator') is extended to take account of firms' precautionary investment behaviour when they anticipate future liquidity constraints. This behaviour is at the source of a powerful amplification mechanism of shocks, and is also able to account for the documented dynamics of the composition of investment across the business cycle: in particular how risky, illiquid investment as a share of total investment fluctuates both at the firm and at the aggregate level. Chapter II studies how the public supply of liquidity affects the private creation of liquidity by firms (inside liquidity), and how this interacts with firms' demand for liquidity to influence investment and capital accumulation. The conditions under which government debt may boost or reduce private investment are shown to depend on three channels: (1) a crowding-in effect, by enhancing aggregate liquidity, (2) a crowding-out effect, by reducing the collateral value of entrepreneurial assets and (3) a redistributive effect. The model also shows how a production economy with endogenous liquidity can help resolve some important asset pricing puzzles. Finally, the business cycle properties of the model are studied. Chapter III shows how recent developments in financial markets may have made economies less vulnerable to banking crises as they widen access to liquidity, but by relaxing financial constraints facing financial intermediaries, they imply that, should a crisis occur, its impact could be more severe than previously. These effects may be reinforced by greater macroeconomic stability. Finally, financial intermediaries are shown to under-insure and over-borrow from a constrained-efficient viewpoint.

This thesis discusses the three issues that are important to macroeconomic policymakers. First, I examine the role of inventories over the business cycle. Despite accounting for less that 1% of the level of GDP, inventory changes have made up almost 50% of the post-war volatility of US GDP growth, and yet most models of the business cycle exclude inventories. I develop a dynamic business cycle model that incorporates distribution inventories as well as simple storage inventories. I find that the behaviour of inventories in this model matches the aggregate data well. However, there is little evidence that improved inventory management contributed to the decline in macroeconomic volatility over the last quarter of a century. Second, the optimal design of a monetary policy committee (MPC) is examined as to whether such committees should include a mix of members from outside (external) as well as inside central banks (internal). Using a new theoretical model of voting behaviour on a mixed committee, it is shown that, under certain circumstance and behaviour, the presence of external committee members may be beneficial. However, using the voting record of the Bank of England's MPC, reveals a problem; there is evidence of an agency problem which may eliminate any benefit to the appointment of external members. These results undermine the current intuition as to why such mixed committees should be employed by policymaking institutions. Finally, I investigate the effect of policy uncertainty on household saving using a quasi-natural experiment from Germany in the late 1990s. Around the 1998 election, there was a marked increase in uncertainty; using the fact that civil servants were largely unaffected by this policy uncertainty, we show that households reacted to the increase in uncertainty by saving more and, where possible, by working more via the margin offered by part-time employment.

This PhD thesis mainly consists of 3 papers that generally focus on the link between macroeconomic volatilities and trade flows and growth, as well as behavior of prices. Chapter 1 gives the introduction. Chapter 2, the first paper, investigates the effect of real exchange rate volatility on sectoral trade flows between the United States and her top thirteen trading partners. :My investigation also considers those effects on trade flows that may arise through changes in income volatility, and the interaction between income and exchange rate volatilities. My results show that exchange rate uncertainty has little effect on sectoral trade flows, and income volatility has no significant effect on sectoral trade flows. The interaction term of exchange rate volatility with income volatility takes the opposite sign to that of exchange rate volatility, reversing the impact of exchange rate volatility on trade flows. Chapter 3 presents my second paper. This chapter investigates the effects of inflation uncertainty on the level of sectoral output growth rate and its cross-sectional dispersion by observing a panel of Japanese manufacturing sectors. Using an augmented profit model with a signal-extraction framework, I demonstrate that increasing inflation volatility will reduce the level of sectoral output growth rate, as well as narrowing its cross-sectional dispersion of output growth. Chapter 4 investigates the relationship between product specific inflation (PS-inflation) and relative price variability (RPV) in one of the top three ecoThis PhD thesis mainly consists of 3 papers that generally focus on the link between macroeconomic volatilities and trade flows and growth, as well as behavior of prices. Chapter 1 gives the introduction. Chapter 2, the first paper, investigates the effect of real exchange rate volatility on sectoral trade flows between the United States and her top thirteen trading partners. :My investigation also considers those effects on trade flows that may arise through changes in income volatility, and the interaction between income and exchange rate volatilities. My results show that exchange rate uncertainty has little effect on sectoral trade flows, and income volatility has no significant effect on sectoral trade flows. The interaction term of exchange rate volatility with income volatility takes the opposite sign to that of exchange rate volatility, reversing the impact of exchange rate volatility on trade flows. Chapter 3 presents my second paper. This chapter investigates the effects of inflation uncertainty on the level of sectoral output growth rate and its cross-sectional dispersion by observing a panel of Japanese manufacturing sectors. Using an augmented profit model with a signal-extraction framework, I demonstrate that increasing inflation volatility will reduce the level of sectoral output growth rate, as well as narrowing its cross-sectional dispersion of output growth. Chapter 4 investigates the relationship between product specific inflation (PS-inflation) and relative price variability (RPV) in one of the top three economic areas in China. My estimation model contains a broader framework, which combines both effects of expected and unexpected product specific inflation on RPV, and those effects on RPV across various inflation regimes. My empirical results suggest that the absolute value of expected PS-inflation negatively affects RPV, and this effect reverses to be positive under the region of negative inflation, which is consistent with "asymmetric price adjustment"· in literature. On the other hand, absolute value of unexpected PS-inflation positively affect RPV when inflation rate is negative. An economical recession has different impacts on the effect of PS-inflation on RPV across different inflation regimes. Also, Chinese New Year has shown to exaggerate the effect of either expected or unexpected PS-inflation on RPV.

Despite the traditional separation of academic studies regarding macroeconomics and financial markets, recently, there has been increased interest in investigating the relationship between them based on models of the term structure of interest rates. This thesis in “Macro-finance” connects macroeconomic variables and the fixed income financial markets, both Treasury and corporate. Traditional economic models in linking these markets with the macroeconomy concentrate on the determination of the short rate, as the policy instrument, via the familiar Taylor-rule. The essays in this thesis provide evidence of the mutual relationships in two dimensions: a) price formation in these markets and macroeconomic conditions originating from home and abroad, and b) information originating in these markets and expectations regarding the future state of the economy. In the first essay, we study the impact of oil price shocks in the global crude oil market on the dynamics of the entire term structure. The responses of the yield factors to oil market shocks are shown to differ contingent on the underlying sources driving oil price shocks and the country's dependency on oil. The oil supply and demand shocks explain a considerable amount of variations in the term structure of interest rates, especially in countries with high oil dependency. The second essay tests the predictive power of economic policy uncertainty (EPU) for future bond returns. Using the policy uncertainty measure recently developed by Baker et al. (2016), we investigate the relationship between economic uncertainty and excess bond returns. The impact of the uncertainty is shown to be larger for shorter maturities in near investment horizons. An affine term structure model incorporating the uncertainty factor produces higher fluctuations in term premia estimates which display strong countercyclical movements and accords with expectations. Finally, we examine whether professional forecasters incorporate high-frequency information about credit conditions in revising their economic forecasts. Using Mixed Data Sampling regression approach, we find that daily credit spreads have significant predictive ability for monthly forecast revisions of output growth, at both aggregate and individual levels. The relations are shown to be notably strong during ‘bad’ economic conditions, indicating that forecasters anticipate more pronounced effects of credit tightening during economic downturns.

This thesis consists of seven essays that deal with microfunctions of macroeconomics. Two important questions that are addressed in this context are: (i) Do we expect to obtain stylised facts of macroeconomics from microstructures that we observe in labour, financial and product markets (for instance forms of contracts, organisation of wage determination, institutional features)? (ii) Can these microstructures that we observe be explained in a coherent way? Once we answer these questions, we can also reach "efficiency" conclusions and determine certain costs and benefits of different microstructures. This thesis tries to tackle these questions in specific cases. In particular, we investigate these issues in the context of (a) business cycle fluctuations, (b) the persistence and volatility in the time-series relationship behaviour of unemployment and wages, (c) the recent high levels and persistence of long-term unemployment, (d) the time-series relationship between investment and output, (e) the nature and form oflabour, product market and financial contracts.

The concept of the trilemma has occupied an unassailable place in international macroeconomics ever since the work of Mundell (1960), Mundcll (1962) and Fleming (1962). In its simplest form, the concept posits the difficulty an economy with a fixed exchange rate face.') in setting its own interest rates, in an environment of an open capital account. Hence, the term "impossible trinity', which is also used in the literature. To what extent is this assertion valid? Given that endeavours to operate some kind of fixed exchange rate regime have eventually resulted in economic and financial disaster to varying degrees; could the trade-off inherent in the trilemma be the culprit? Empirical tests of the trilemma have, however, yielded results that are not overwhelmingly conclusive. Our aim is to make a contribution to the debate on the relevance of the trilemma, and its relationship with economic performance, by studying a group of emerging market economies. In the first study we employ both pooled data and individual country regressions to test the trilemma. The pooled data results find strong evidence that lends credence to the trilemma, whilst the individual country regressions produce moderate. support. Both approaches also find some propensity for the "fear of floating" to exist. In the second study, we first model international macroeconomic arrangements using a system of trilemma archetypes, and then ascertain their relationship with macroeconomic performance, as well as reserves. The results obtained indicate some statistically significant correlation between trilemma archetypes and macroeconomic performance and reserves. The third study, which is an overview of trilemma policies and their effects in the BRIC economies, confirm the trilemma principle to a significant degree, with the exception of a few instances, where the concept is seen not to hold, at least, in the short run

This thesis is structured around three main essays. The first focused on the sources of current account (CA) fluctuations in industrialized countries. Using a SVAR model with minimal long-run identifying restrictions, we identified external productivity shocks, domestic permanent and temporary output shocks, and demand or preferences shocks. We have found that the present value model (PVM) of the CA is consistent with the behaviour of the data for all countries except for France and the UK, where permanent domestic shocks have a long-run impact on the CA. Preferences shocks and, mostly, external supply shocks appear to play an important role in explaining CA fluctuations. Our model also reduces the degree of excess response of the CA to temporary output shocks found in previous literature. The second essay provides descriptive evidence at a disaggregate level on the behaviour of a large set of developed and emerging markets around recession dates. Using sectoral value added (VA), employment and productivity data, we unveiled a set of regularities for both sets of countries, while grouping industries according their level of productivity and external financial dependence. Also, we distinguished financial from normal recessions. Most importantly, results show that recessions tend to be more industry-specific events in emerging markets and economy-wide phenomena in developed countries. Moreover, the amplitude of the cycle for VA and productivity growth is larger -for emerging markets. Also industries with high dependence on external finance generally face higher contractions in V A, especially in the case of financial recessions. The third and final essay examined the importance of sector-specific factors in explaining business cycles (BC) co-movement, by analyzing international co- movements of VA growth in a multi-sector dynamic factor model. The model contains a World, country-specific, and sector-specific factors, and idiosyncratic components. We estimated the model using Bayesian methods for 30 sectors in the G7 economies for the 1974-2004 period. Our findings show that although there is a substantial role for sector-specific factors, fluctuations are dominated by country- factors. Also, the World factor appears to play a minimal role. Finally, our results suggest that, contrary to the convergence hypothesis, BC at a disaggregate level have not on average become more synchronized at the international level.