Thesis. 1975. Ph.D.--Massachusetts Institute of Technology. Dept. of Economics. / Vita. / Bibliography: leaves 213-214. / Ph.D.

This dissertation combines micro-level empirical analyses and general equilibrium models to study the issues of output price, price-cost markup, and business cycle dynamics. In the first chapter, I study how a credit crunch affects output price dynamics. I build a unique micro-level dataset that combines scanner-level prices and quantities with producer information, including the producer's banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers' failure as a quasi-experiment and find that firms facing a negative credit supply shock decrease their output prices approximately 15% relative to their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and to generate additional cash flow from the product market. I find strong empirical support for this hypothesis: (i) firms facing a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) this effect is stronger for firms and sectors with high initial inventory or small initial cash holdings. To discuss the aggregate implications of these findings, I integrate this micro-level study into a business cycle model by explicitly allowing for two identical groups of producers facing different degrees of credit supply shock. The model predicts that a negative credit supply shock leads to a large temporary drop in aggregate inflation---as a result of the aggressive liquidation of inventory---followed by an increase in inflation as producers eventually run out of inventory. This prediction for inflation and inventory dynamics is fully consistent with observations for the 2007-09 recession. In the second chapter, I study price-cost markup cyclicality. Existing empirical evidence on price-cost markup cyclicality is mixed. I find that markups are procyclical unconditionally, and procyclical conditional on demand shock using a flexible production function. The estimated production function features a larger input complementarity than that in a tightly parametrized production function (Cobb-Douglas and CES), producing both greater efficiency and higher markups during an expansion. These results have two striking implications: (i) much of the cyclicality in markups arises from input complementarity, rather than nominal rigidity, and (ii) the U.S. economy behaves as if it has increasing returns to scale. The third chapter studies the business cycle with a Translog production function. We empirically identify a complementarity between labor and energy that leads to procyclical returns to scale, which is not compatible with the tightly parameterized production function commonly used in the literature (Cobb-Douglas and CES). We, therefore, propose a flexible Translog production function that not only features complementarity-induced procyclical returns to scale but is also consistent with a balanced growth path. A simple calibrated business cycle model with the proposed production function generates strikingly data-consistent dynamics following demand shock without relying on either nominal rigidities or countercyclical markups. Our model also produces a stronger amplification effect than the model without complementarity. We then incorporate our production function into a benchmark medium-scale New Keynesian model (Smets and Wouters 2007) and repeat the business cycle accounting exercise. We find that input complementarity leads to a more dramatic decrease in the role of ''suspicious shocks" than of ''structural shocks."

門限協整是金融和統計研究中一個充滿活力的課題。其估計方法往往基於向量誤差修正模型，并儘限於單門限情形。本論文研究了多門限協整模型的估計問題。針對多門限協整，我們提出了兩種基於多門限向量誤差修正模型的估計方法：最小二乘估計和光滑最小二乘估計，并給出了最小二乘估計的收斂速度和建立了光滑最小二乘估計的極限分佈。爲了對這兩種估計方法的性能進行評估，我們展開了一項模擬實驗，實驗結果印證了本文給出的極限理論。通過多門限協整模型，我們隊利率期限結構進行了研究。 / 最後，本論文研究了光滑轉移協整的最小二乘估計方法，并給出了其極限分佈。 / Threshold cointegration has been a vibrant research topic in finance and statistics. Estimation procedures of threshold cointegrated models are usually based on the so-called threshold vector error correction forms (TVECMs) for one threshold case. In this thesis, we investigate two estimators for multiple thresholds cointegrations via TVECMs, namely the least squares estimator and the smoothed least squares estimator. The convergence rate of the least squares estimator is obtained and limiting distribution of the smoothed least squares estimator is developed. To assess the performance of these two estimators, we conduct a simulation study, the result of which supports the asymptotic theories developed. We study the term structure of interest rates by a two thresholds cointegration as an example. / Finally we also investigate the least squares estimator of smooth transition cointegration and establish the limiting distribution. / Detailed summary in vernacular field only. / Detailed summary in vernacular field only. / Wang, Man. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2013. / Includes bibliographical references (leaves 83-88). / Abstract also in Chinese. / Abstract --- p.i / Acknowledgement --- p.iii / Chapter 1 --- Introduction --- p.1 / Chapter 1.1 --- Background --- p.1 / Chapter 1.1.1 --- Two-step Estimator --- p.3 / Chapter 1.1.2 --- Simultaneous Estimator --- p.4 / Chapter 1.2 --- Outline --- p.6 / Chapter 2 --- Threshold Cointegration --- p.7 / Chapter 2.1 --- Linear Cointegration --- p.7 / Chapter 2.1.1 --- Representation --- p.9 / Chapter 2.1.2 --- Two-step Estimator --- p.10 / Chapter 2.2 --- Threshold Cointegration --- p.12 / Chapter 2.2.1 --- SETAR Representation and Estimation --- p.12 / Chapter 2.2.2 --- TVECM Representation and Estimation --- p.15 / Chapter 3 --- LSE of Multipe Thresholds Cointegration --- p.17 / Chapter 3.1 --- Multipe Thresholds Cointegration --- p.17 / Chapter 3.2 --- TVECM Representation and LSE --- p.18 / Chapter 3.3 --- Assumptions and Results --- p.20 / Chapter 4 --- SLSE of Multiple Thresholds Cointegration --- p.25 / Chapter 4.1 --- Smoothed LSE (SLSE) --- p.25 / Chapter 4.2 --- TVECM and Estimation --- p.27 / Chapter 4.3 --- Assumptions and Results --- p.29 / Chapter 4.4 --- Asymptotic Variance --- p.34 / Chapter 5 --- Simulation and Empirical Studies --- p.38 / Chapter 5.1 --- Simulation Study --- p.38 / Chapter 5.1.1 --- Experiment Design --- p.38 / Chapter 5.1.2 --- Simulation Results --- p.40 / Chapter 5.2 --- Term Structure of Interest Rates --- p.42 / Chapter 6 --- Smooth Transition Cointegration --- p.50 / Chapter 6.1 --- Smooth Transition Cointegration --- p.51 / Chapter 6.2 --- Assumptions and Results --- p.52 / Chapter 7 --- Conclusion and Further Research --- p.56 / Chapter 7.1 --- Conclusion --- p.56 / Chapter 7.2 --- Future Research --- p.59 / Chapter 7.2.1 --- Nested Testing --- p.59 / Chapter 7.2.2 --- Limiting Distribution of LSE --- p.60 / Chapter 7.2.3 --- Other Nonlinear Cointegration --- p.60 / Chapter A --- Technical Proofs --- p.63 / Chapter B --- Some Formulas --- p.82 / Bibliography --- p.83

The first chapter compares two types of univariate endogenous one-break unit root tests, namely the Dickey-Fuller (DF) type and the Schmidt-Phillips Lagrange Multiplier (LM) type tests. To investigate the small-sample properties of these tests, they are applied to the Nelson-Plosser macroeconomic time series with bootstrapped critical values used for unit root inference. Simulation results show that breaks under the null for the observed data are of sufficient magnitude to lead to size distortion for the DF-type tests, whereas the LM-type tests generally exhibit satisfactory size performance and possess the invariance property. Furthermore, in implementing the LM-type tests, the one that uses the minimum sum of squared residuals break selection method demonstrates better performance over the one that employs the minimum statistic break selection method. / The second chapter proposes LM type panel unit root test procedures with structural changes based on the group mean and combination test approaches. The proposed test procedures allow for breaks under both the null and alternative, and capture heterogeneity due to individual specific characteristics. The same set of distributions of the underlying individual LM statistics can be utilized to compute the panel statistics for the cases with no breaks and with intercept breaks as a result of the invariance property. Simulation results demonstrate that the inverse normal test exhibits the best overall finite-sample properties measured in terms of size and power. When break dates are unknown, the minimum sum of squared residuals break selection method is preferred. The bootstrap approach is suggested to account for cross-sectional dependence. / The third chapter studies panel cointegration tests dealing with two manifestations of structural changes, viz. breaks in the cointegrating relationship and breaks in the trend functions of time series. The importance of accounting for these breaks is highlighted using a simulation study. Finite-sample properties of the Gregory-Hansen (GH) type and LM type tests incorporating breaks in the cointegrating relationship are assessed. Two variants of the LM type tests are further examined in the presence of cross-sectional dependence taking on a factor structure. In the course of test comparison, some modifications are also suggested. A novel test procedure, based on the LM approach, is devised when trend functions of time series are subjected to breaks. Unlike existing tests, this procedure permits unknown breaks under both the null and alternative that can differ in locations among the variables under study. / This thesis investigates panel unit root and cointegration tests with structural changes that are generalizations of their univariate counterparts. Small-sample properties of two well-established univariate test procedures are first assessed using the bootstrap approach. Extensions of these procedures in the panel framework are then examined. / "February 2008." / Adviser: Win Lin Chou. / Source: Dissertation Abstracts International, Volume: 69-08, Section: A, page: 3266. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2008. / Includes bibliographical references (p. 298-305). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. [Ann Arbor, MI] : ProQuest Information and Learning, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. Ann Arbor, MI : ProQuest dissertations and theses, [201-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstracts in English and Chinese. / School code: 1307.

This dissertation examines game-theoretic equilibrium analysis applications to deregulated electricity markets. In particular, three specific applications are discussed: analyzing the competitive effects of ownership of financial transmission rights, developing a dynamic game model considering the ramp rate constraints of generators, and analyzing strategic behavior in electricity capacity markets. In the financial transmission right application, an investigation is made of how generators’ ownership of financial transmission rights may influence the effects of the transmission lines on competition. In the second application, the ramp rate constraints of generators are explicitly modeled using a dynamic game framework, and the equilibrium is characterized as the Markov perfect equilibrium. Finally, the strategic behavior of market participants in electricity capacity markets is analyzed and it is shown that the market participants may exaggerate their available capacity in a Nash equilibrium. It is also shown that the more conservative the independent system operator’s capacity procurement, the higher the risk of exaggerated capacity offers. / text

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published_or_final_version / abstract / toc / Physics / Doctoral / Doctor of Philosophy

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This dissertation develops variants of the well-known Hotelling’s location model to examine the nature of competition in the audit market where audit firms make strategic specialization and pricing decisions. In a multi-period spatial oligopoly model of auditing competition, audit firms obtain market power through their service specialization with respect to client characteristics relevant to audit production. This market power allows audit firms to price discriminate among clients. Competition among audit firms is localized: an audit firm optimally charges a client, to whom it has the lowest auditing cost to serve, the marginal auditing cost of the second lowest-cost audit firm. These equilibrium audit firms’ pricing strategies result in an allocation of clients’ surplus and audit firms’ profits that lies in the core of the economy. The existence of a specialization-pricing equilibrium is also established. In equilibrium, given its rivals’ specializations, each audit firm’s profit is maximized by choosing a specialization that maximizes the social welfare (the sum of clients’ surplus and audit firms’ profits). Moreover, audit firms never choose the same specialization in equilibrium. Instead, in order to earn rents as ‘local monopolists’, audit firms differentiate themselves from each other. This result is consistent with a widely held notion that audit firms search for ‘niche’ markets, such as industry specialization, to increase their profits. The dissertation then focuses on a two-period spatial duopoly model in which the market power created by audit firm specialization is now further fortified by the presence of auditors’ learning and clients’ switching costs. In this case, audit firms optimally price discriminate among clients by offering them ‘specialization-and-relationship-specific’ audit fee schedules. The practice of ‘low-balling’ is found to be a natural consequence of the competition among audit firms. However, low-balling occurs only in a certain market segment where audit firms compete quite fiercely. The analysis also demonstrates how equilibrium audit fee schedules, audit firms’ specializations and profits, clients’ surplus, and social welfare depend on the auditing costs, the learning rate, and the switching costs. Some interesting policy implications are illustrated. Finally, the model is used to analyze the impact of banning audit firms from the practice of low-balling. It is demonstrated that even though a policy of banning low-balling always reduces competition, it improves social efficiency in some cases.

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