Government spending has several components. The government buys intermediate goods and services from the private sector, it invests in infrastructure, it hires workers and pays them a wage and it also makes transfer and interest payments. While most of the theoretical papers studying the effects of government spending focus on purchases of intermediate goods and services, the main objective of this thesis is to examine two other types of expenditure. The first part studies the effects of public sector employment and wages through the labour market and their role over the business cycles in a model with search and matching frictions. The first conclusion is that different components of spending can potentially have distinct macroeconomic effects. The second conclusion is that government wages are an important element to achieve efficiency in the labour market. High wages induce too many unemployed to queue for public sector jobs and raise private sector wages, which lowers job creation in the private sector and raises unemployment. Throughout the business cycle it is optimal to have procyclical public sector wages. The second part is devoted to the study of the role of public sector capital and its interaction with the determination of labour and profit taxation. Over the past 30 years in developed countries we have observed a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. I study these trends in an optimal dynamic taxation model where the government also chooses how to allocate spending between government consumption and investment in public capital. I find that the government's decision of how to allocate spending is not independent of the decision of how to raise taxes. I then discuss several hypotheses that are consistent with the observed trends. The last part of the thesis gathers two empirical essays on labour market flows and on the determinants of sovereign debt ratings.

This thesis modifies the basic neoclassical DSGE model of Kiyotaki and Moore (2012) by introducing a government which levies distortionary taxes on wages and dividends, consumes general output, issues money, and holds privately-issued equity. The thesis answers two questions - Can discretionary policy relieve the effects of liquidity constraints that limit investment, and thereby stimulate economic activity in normal times? Can discretionary policy ameliorate the effects of an exogenous liquidity shock? Including distortionary taxes is a unique modification within a branch of literature that extends the work of KM and studies liquidity shocks. The thesis belongs to a branch of this literature which modifies KM's basic model, but none of these papers have distortionary taxes and none examine fiscal policy. The thesis extends the literature with a novel variant of the basic KM model and with a novel set of policies against a liquidity shock. The results are as follows. Firstly, if money supply is constant and government spending varies to always balance the fiscal budget, then across-the-board tax cuts persistently stimulate the economy and a cut in the rate of tax on dividends ameliorates a liquidity shock without additional distortions. These responses are robust to the model's calibration. Secondly, an increase in government spending, financed by more taxes or selling equity holdings, persistently worsens economic activity and exacerbates a liquidity shock; financing the policies is what brings adverse results. Thirdly, the direct effects of a government equity purchase programme are short-lived - investment rises and new equity is added to the market which partially offsets the government's purchase. Financing the programme with spending cuts do less harm than raising taxes. Adding monetary expansion to the policy mix improves aggregate supply but reduces aggregate demand. When used against a liquidity shock, the programme makes a positive but short-lived difference.

This dissertation analyses the period of Structural Adjustment in Mexico from 1986 to 1999. This includes the liberalisation of the incentive system and the restoration of investment. The research work presented here looks at the effect of an aspect of structural adjustment policy - trade reform -on labour market outcomes at the household level, in Mexico, by considering a large number of observations (household members), from a number of cities, over a period of thirteen years. It examines whether Mexico should have used alternative policies in order to improve the economic and social conditions of the poor. The main questions explored by this dissertation are: What has been the impact of adjustment on Mexican macroeconomic indicators directly related to poverty? Were migration and remittances affected by the adjustment process? The specific research questions are: 1. How did the effects of economic reform on wage and employment vary with age and gender in the short and medium term? Did this relationship change over time? 2. Did structural adjustment and trade liberalisation harm or help the poor? 3. Did the reforms help the poor indirectly through their positive effect on economic growth? 4. What were the effects of macroeconomic policy on aggregate measures of welfare - average wage, proportion of individuals unemployed? 5. What happened to migration and remittances during the analysed period? There are three separate analyses. The first two use repeated cross-sectional models to determine the effects of policy, economic conditions and household characteristics on wages, the probability of being unemployed and employed in the informal sector, as well as the probability of being poor. It is important to mention that this study refers mainly to the urban population. It is the use of household characteristics as control variables in the determination of welfare that distinguishes the models here from the macroeconomic models commonly used. For comparison, a third analysis uses a traditional time series model to measure the effects of policy and economic conditions on aggregate measures of welfare.

This thesis aims at investigating the relationship between liquidity and information asymmetry. Recent studies try to incorporate liquidity and information risk factors into asset pricing models but whether just one or both should be priced remains uncertain. Since the introduction of the probability of information-based trading (PIN) model (Easley et al., 1996) evidence has been offered to prove that it is a risk factor and it has been adopted as a highly convenient and plausible measure of private information and information risk. In order to carry out our investigation, we use PIN to measure the level of information asymmetry in comparison with seven well-known liquidity measures. Our results indicate shared characteristics with these measures. We find that within our sample period of 1984-2002 PIN may serve as a liquidity indicator but is questionable as a separate risk-based factor. We compute PPIN, a proxy of PIN proposed by Aslan et al. (2011), in order to extend our sample period to 1969-2009 and we investigate PPIN against the seven well-known liquidity measures. We provide evidence of diminishing information asymmetry. We find PPIN inconsistent with asymmetric information as a priced risk factor but a good predictor of future returns.

Nominal rigidity and the real effects of the monetary policy have been central to the macroeconomics research. This thesis incorporates the recently emerged micro evidence of heterogeneous price stickiness into the Dynamic Stochastic General Equilibrium (DSGE) models to address the issues of persistence of the real economy as well as the optimal monetary policy. Chapter 1 examines the source of output persistence from a monetary shock along two dimensions. The first dimension is different pricing models allowing for the heterogeneity in price rigidity, which include the Generalized Taylor Economy (GTE), Multiple Calvo model (MC) and Generalized Calvo model (GC). The other dimension is various assumptions made about the factor markets, including the presence of the endogeneous capital accumulation and the firm-specific labor market. The findings suggest that all the three pricing models with heterogeneous nominal rigidity are capable of generating higher real persistence relative to the models with homogeneous price durations; The presence of firm-specific labor market increases output persistence significantly due to the lower real rigidity, whereas the capital accumulation dampens the persistence in the short run, particularly when labor market is firm-specific. However, in the long run, capital market tends to increase persistence due to its slow adjustment dynamics. Chapter 2 addresses the issue of inadequate persistence of the real exchange rate generated by the two country DSGE model. It applies the GTE pricing structure consistent with the heterogeneous micro price data into anotherwise standard open-economy model with capital accumulation. The results show that the GTE model can increase the persistence of the real exchange rate and other macro variables similar to an extent that the data exihibit. In addition, other pricing structures featuring heterogeneous price durations such as MC and GC models yield similar results to GTE. Chapter 3 compares the optimal monetary policy in the GTE and MC models. In particular, it considers the performance of the aggregate inflation targeting regime as well as the sectoral inflation targeting rules, where the price stickiness is heterogeneous across sectors. It is found that the MC model yields lower absolute wellfare loss than the GTE in any policy regime, due to smaller variation in sectoral prices. Moreover, the sectoral inflation targeting regime outperforms the aggregate targeting rule, yet the welfare gain is insignificant. Under the sectoral inflation targeting, the optimal indices in the GTE are driven mainly by the sectoral weights, with the most flexible sectors receiving the highest policy weights. Whereas in the MC model where the sectors are equally sizaed, the stickier the sector is, the higher the policy weight it attracts

No description available.

No description available.

No description available.

I study fiscal and monetary policies in a liquidity constrained environment using a New Keynesian dynamic stochastic general equilibrium model in which households face both a borrowing constraint and a resaleability constraint on their assets. This dissertation is composed of three papers. The first one examines the fiscal multiplier by assuming a closed economy. The multiplier implied by the model is large enough to suggest that fiscal policy is highly effective in a liquidity constrained environment. Government spending stimulates output by increasing aggregate demand and improving liquidity in the private sector. The second paper extends the model into a small-open-economy framework and studies the fiscal multiplier in a liquidity-constrained open economy. The size of the multiplier in this case depends heavily on the degree of international capital mobility. The multiplier is significantly larger if the small open economy has only limited access to foreign capital markets, suggesting that the liquidity improvement due to a fiscal expansion induces more economic growth at home if international capital markets are imperfect. The third paper investigates optimal monetary policy using the model in a closed-economy setting. Unlike in a standard model, the central bank in this liquidity constrained model faces a trade-off between inflation and output stabilisation. Optimal monetary policy requires a temporary deviation from price stability in response to a liquidity shock. The results show that quantitative easing improves the policy trade-off by relaxing liquidity constraints.

The first chapter proposes an alternative macroprudential policy in the framework of Gertler, Kiyotaki and Queralto (2012). In their model, the central bank subsidizes bank outside equity, where the subsidy rate is determined by the shadow cost of the deposit. We find that the alternative rule in which the subsidy rate responds to the aggregate bank outside equity ratio is welfare improving because it has a better stabilization effect on the bank asset deterioration after a nancial shock. We disentangle different channels through which macroprudential policies affect the economy and demonstrate that the better stabilization in the post-crisis economy has a positive effect on the economy in normal times through security prices. In the second chapter, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coe cient autoregressive process and we prove that this process is covariance stationary. This chapter comments on Angeloni and Faia (2013, Journal of Monetary Economics), a dynamic stochastic general equilibrium model with a risky banking sector. We identify the sources of inefficiency in the model and disentangle the channels through which banks choose a high level of leverage. We explain that their assumptions that generate banks over-borrowing feature lead to the return on assets and the bankruptcy probability that are unrealistically high. Next, we modify the model by incorporating the banking sector of Gertler and Karadi (2011) into the AF model and show that the calibration result improves.