Doctor of Philosophy / Economics / Lance J. Bachmeier / This dissertation consists of three essays examining the consequences of oil price shocks on exchange rates and the economy of Saudi Arabia. In the first essay, we examine the impact of oil prices on the US dollar (USD) exchange rate in the flexible monetary model framework. We find evidence, based on the impulse response function analysis from the VEC model, suggesting the negative association between oil prices and the USD against 12 currencies. Furthermore, the results from out-of-sample forecasts indicate that oil prices play an essential role in improving the forecasting power of the monetary model of exchange rate determination. In the second essay, we analyze how G7 real exchange rates and monetary policy respond to oil supply, aggregate demand, and oil-specific demand shocks initiated by Killian (2009). Our evidence confirms that aggregate demand and oil specific demand shocks are associated with the depreciation of the real exchange rate for five countries whereas oil supply shocks lead to the depreciation of real exchange rate in four countries. Likewise, we find the monetary policy responds significantly only to aggregate demand and oil specific demand shocks in three countries while the monetary policy responds to real exchange rate shocks in four countries. In the third essay, we investigate the differential effects of oil shocks, developed by Killian (2009), on industrial production, inflation, and the nominal exchange rate of Saudi Arabia. The reported evidence shows that industrial production responds positively only to oil supply shocks. Likewise, we find evidence indicating that there is a positive impact of aggregate demand shocks on inflation. On the other hand, we find evidence suggesting that oil supply and demand shocks are associated with the nominal exchange rate depreciation.

Master of Arts / Department of Economics / Peri da Silva / The effects of military expenditures on an economy are characterized by a lack of agreement amongst economists. Classical economists, or free-market thinkers, contend that spending on defense diverts resources from more efficient purposes. On the other hand, Keynesians or those of the Structurialist school, argue that defense spending can improve economic growth through the improvement and construction of important infrastructures. Research prior to the 1990’s was identified through a non-econometric approach which we will denote as the First Generation. Economists would analyze the issue from a theoretical standpoint. This provided the foundation for research from the 1990’s onward, as econometric tools became more sophisticated. In recent years, economists have been able to test the legitimacy of the theories put forth in the first generation. Despite the use of various models, including least-squares regressions, endogenous growth, growth curves, economists still lack a general consensus. Furthermore, many models suggest that there is no relationship between economic growth and military expenditures at all. This paper explores ideas from both a theoretical and econometric point of view, standpoints of which includes a positive, negative, or no relationship, between military expenditures and economic growth. From our analysis, we argue that the best approach involves a country by country analysis as opposed to a generalized view. Each country has its own characteristics that can influence the relationship between defense spending, or any other factors, and economic growth.

<p> There is an urgent need for upper secondary-level and above educated people in Indonesia. According to a recent report, Indonesian companies cannot fill 50% of their entry level positions. To increase the educational attainment, government has been implementing various polices, such as school construction program, compulsory education and allocating 20% of its budget to education, but inadequate enrollment at upper secondary and tertiary levels and the quality of education still remain as big problems. To shed a light on these urgent and recent problems, I ask four questions: a) What is the effect of school quality on tertiary attainment? b) Which school level does the quality matter more? c) Which factors prevent high ability individuals to get tertiary attainment? d) How important is parental background for educational attainment at each stage of the educational path? Previous work focused on school quality&rsquo;s effect on lower secondary education, and a lack of upper secondary-level and above educated people is an issue only brought up recently and analyzed in this paper. I show that primary school quality has a direct effect on tertiary attainment besides its indirect effect due to the accumulation of school quality at each level. To generate my dataset, I use four waves of Indonesia Family Life Survey. My model accounts for unobserved heterogeneity to handle self selection issues in education. This is one of the few studies in a developing country modeling long term educational decisions. I analyze the role of family background, location, personal characteristics, number of schools used in each community, primary school quality, as well as student&rsquo;s ability and motivation for transitions to lower secondary, upper secondary, and tertiary education in Indonesia. With a focus on tertiary educational attainment, I show that long term factors and early fundamental education play a big role. These findings further support the importance of promoting cognitive ability and high quality education early in life; especially for those who are coming from more disadvantaged environments.</p>

This dissertation considers three problems related to the issue of asymmetric information. The first problem is that of increased information in markets with unknown quality. I show that an increase in information need not produce an increase in market efficiency, even if the volume of trade in the market increases. The second problem is the use of non-monotonic contracts. I show that subjects do not typically employ non-monotonic contracts when they are optimal, although they will more frequently if they know the agent receiving the contract is fully rational and profit-maximizing. The third problem is the use of relative performance evaluation in situations where agents make risky decisions. I show that relative performance evaluation is rarely better, and frequently worse, than other contracting structures.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2019 / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 255-262). / This dissertation consists of four chapters. Chapter 1 studies the effect of online review manipulations on review systems. Chapter 2 and Chapter 3 are co-authored with Ali Kakhbod and focus on post-trade transparency in dynamic over-the-counter markets. Chapter 4 is co-authored with Umut Dur, Parag A. Pathak and Tayfun Sönmez and studies the effect of the Taiwan mechanism, a mechanism that allocates high school seats to applicants. Chapter 1 shows that the conventional impression holds in the short-run that review manipulation makes review systems less informative. In the long-run, however., a manipulated review system can contain the same level of information as an un-manipulated counterpart. I develop a dynamic programming model with fixed product quality and naive buyers who are unaware of manipulation. I then extend it to consider endogenous product quality and sophisticated buyers. I also identify an unexpected effect of a policy to target sellers and check for manipulation. / Chapter 2 studies how mandatory transparency (through TRACE), along with the long-term incentive of informed dealers, affects market price informativeness, liquidity and welfare in dynamic over-the-counter (OTC) markets. We show that the public disclosure of additional information about past trades, paradoxically, makes the markets more opaque, by reducing the market price informativeness. Thus, surprisingly, transparency requirements such as U.S. Dodd-Frank Act may make markets more opaque. However, this market opacity creates liquidity and increases welfare. To enhance financial transparency and improve the price informativeness as well as the market liquidity and welfare, an effective approach is to randomly audit dealers. Chapter 3 then studies how public disclosure of past trade details affects price discovery dynamics under asymmetric information with heterogenous hedging motives. / We model that an informed buyer (informed trader) sequentially trades with a series of uninformed sellers (hedgers). The informed buyer is forward-looking and risk-neutral, and uninformed sellers are myopic and heterogeneously risk-averse. We discover that sellers' price discovery over the underlying fundamentals is crucially affected by what they can observe about past trade details. Specifically, (i) post-trade price transparency delays price discovery, but once it happens, it is always perfect. (ii) In contrast, when only past order information is available, price discovery can never be perfect, and can even be in the wrong direction. (iii) The availability of past trade details, paradoxically, makes it easier for the informed buyer to hide her private information and offer opaque prices. We establish that, under some minor regularity conditions, our equilibrium characterization achieves the maximal degree of ignorance among all pure-strategy PBE. / Hence, this chapter can be viewed as a worst case analysis for regulators who care about market transparency. Moreover, we show that our findings are robust when the informed party's bargaining power decreases along the length of past trade history. Finally, we extend our results to the case where the informed buyer has a non-zero outside option, and the case where both parties switch their trading positions. Chapter 4 analyzes the properties of the Taiwan mechanism, used for high school placement nationwide starting in 2014. In the Taiwan mechanism, points are deducted from an applicant's score with larger penalties for lower ranked choices. Deduction makes the mechanism a new hybrid between the well-known Boston and deferred acceptance mechanisms. Our analysis sheds light on why Taiwan's new mechanism has led to massive nationwide demonstrations and why it nonetheless still remains in use. / by Fei Song. / Ph. D. / Ph.D. Massachusetts Institute of Technology, Department of Economics

Thesis advisor: Peter N. Ireland / This dissertation contains two independent and self contained essays in monetary economics. Chapter 1: "The New Keynesian Model and The Term Structure of Interest Rates" The first essay studies the ability of a standard New Keynesian model to reproduce the behavior of the term structure of interest rates for the U.S. economy. The model is consistent with important features of the data. The version of the expectations hypothesis embodied in the model does a good job in explaining the patterns of correlations between nominal interest rates of various maturities. Other aspects, such as the volatility of, both nominal and real, long-term interest rates as well as the correlations between nominal interest rates and output, are not appropriately captured by the model. Chapter 2: "Should Monetary Policy Use Long-Term Rates?" The second essay studies two roles that long-term nominal interest rates can play in the conduct of monetary policy in a New Keynesian model. The first role allows long-term rates to enter the reaction function of the monetary authority. The second role considers the possibility of using long-term rates as instruments of policy. It is shown that in both cases a unique rational expectations equilibrium exists. Reacting to movements in long yields does not improve macroeconomic performance as measured by the loss function. However, long-term rates turn out to be better instruments when the relative concern of the monetary authority for inflation volatility is high. / Thesis (PhD) — Boston College, 2005. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Thesis advisor: Fabio Ghironi / Thesis advisor: Peter N. Ireland / This dissertation consists of three essays on Dutch disease effects of capital inflows in emerging market economies. In chapter one, I develop a twosector dynamic, stochastic, general equilibrium model of a small open economy, incorporating an investment technology that utilizes both domestic and foreign capital, and show that as capital inflow increases, tradable sector output increases initially but later contracts as output of the nontradable sector expands in response to an increase in consumption of nontradables. The increase in nontradables consumption causes the relative price of nontradables to rise, thereby exerting pressure on the real exchange rate to appreciate. The model is consistent with features of the business cycle in emerging market economies that were recipients of capital inflows. Chapter two investigates the question of whether capital inflows cause the real exchange rate to appreciate, and whether different forms of capital inflow have variable effects on the real exchange rate. I use panel data for a group of sub-Saharan African countries to estimate a dynamic real exchange rate model specifying a set of capital inflow variables. The results reveal that increases in foreign direct investment and, especially official aid cause the real exchange rate to appreciate. Chapter three develops a monetary version of the model in the first chapter, with monopolistic competition and sticky prices in the nontradable sector. I examine the roles and welfare implications of a set of monetary policy rules in a small open economy that is susceptible to the Dutch disease. The results show that Dutch disease effects occur under a fixed nominal exchange rate regime, mimicking the dynamics in economies that pegged the nominal exchange rate during episodes of capital inflow; whereas Taylor-type interest rate rules featuring either the real exchange rate or the nominal exchange rate avert Dutch disease effects. Welfare results reveal that the optimal rule is a generalized Taylor rule consistent with nominal exchange rate flexibility. / Thesis (PhD) — Boston College, 2006. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

An oft-neglected pattern of behavior in the industrial organization literature occurs when firms time the release of their products so that they are not released on the same date. Because of the potentially collusive nature of this practice, there may be legitimate antitrust concerns. This paper presents a model of this behavior which will be called the alternating periods monopoly (APM). Industry characteristics that increase the likelihood of the APM are developed and conditions are derived in a stochastic demand environment to show when firms would prefer to use the APM to other sustainable methods of collusion. A detailed description of the post World War II baseball card industry is presented using the standard industrial organization structure-conduct-performance paradigm as a guide. The characteristics of the baseball card industry closely parallel those characteristics discussed in the theoretical model. This parallel between the theory and the industry suggests that data from the baseball card industry may be used to determine if the manufacturers are using an APM. Current methods of detecting potentially collusive behavior are discussed in the fourth chapter. The data from the baseball card industry do not meet the assumptions needed to effectively use the current methods, rendering them useless in this particular industry. I propose a new empirical test based on duration analysis to determine if firms are using the APM. Using the time between product release data from the baseball card industry, I estimate hazard rates that show positive duration dependence. I also estimate hazard rates for data sets constructed using the same parameters (number of releases and number of days over which those releases occur) as the baseball card industry, but forcing the firms to release in ways that would not be considered to match the APM. The hazard rates for the constructed data show negative duration dependence, which provides evidence that the data from the baseball card industry is consistent with an APM hypothesis. The fifth chapter of the dissertation uses an economic experiment to determine if the APM can arise without free-form communication between subjects. The existence of practices that facilitate collusion has generated a large discussion in the antitrust arena. This experiment allows subjects to communicate their future intentions of entering a market in a particular time period by means of a binary signal, where 1 signals enter and 0 signals exit. The overwhelming evidence provided by the experiment is that subjects cannot use the binary signals to coordinate on an APM, even though it is clear that some subjects are both signaling a willingness to participate in an APM and making entry decisions consistent with an APM. These experiments show that the practice of sending non-binding communication is not enough to foster collusion among all subjects, although the treatments with fewer subjects and higher costs show some evidence that an APM may arise under these conditions. / A Dissertation submitted to the Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Fall Semester, 2004. / Date of Defense: August 17, 2004. / Temporal Collusion, Experimental Economics, Baseball Card Industry, Duration Analysis / Includes bibliographical references. / R. Mark (Robert Mark) Isaac, 1954-, Professor Directing Dissertation; Joe Cronin, Outside Committee Member; Tom Zuehlke, Committee Member; Tim Salmon, Committee Member.

I use economic experiments to investigate individual behavior under uncertainty. The first essay examines the consistency of risk preferences over two institutions. The two institutions I use are the first price sealed bid auction and a Holt-Laury lottery. There is some controversy as to whether or not observed overbidding in first price auction is actually caused by risk aversion or simply consistent with it. Behavior in the Holt-Laury lottery being caused by risk aversion is not in dispute. By having the same subjects participate in both institutions, I show that subjects' risk preferences in the lottery are consistent with subjects' risk preferences in the auction. This supports the notion that behavior in the first price sealed bid auction is in fact driven by risk aversion. I also find support for the constant relative risk aversion model (CRRAM). Using CRRAM I find that the risk parameters derived in the lottery are consistent with the risk parameters derived in the auction. The second essay examines how individuals respond to random monitoring. I design a real effort laboratory experiment with incentives similar to those faced by many workers. Subjects are allowed to engage two tasks; one task mimics work for an employer, the other task allows for gains due to shirking. Employee shirking has the potential to be extremely costly to firms. To counter the productivity loss due to shirking, firms may institute various monitoring schemes. Previous experimental research has shown that while monitoring does decrease shirking, some subjects work without explicit financial incentives. My experimental design corrects for the possibility of these past results being artifacts of past experimental design. I find that subjects who are given incentives to shirk do in fact shirk, but monitoring and an attainable quota lead to increased productivity. However, when the quota is unattainable, subjects revolt and engage in a high amount of shirking. / A Dissertation submitted to the Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Fall Semester, 2007. / Date of Defense: July 17, 2007. / Monitoring, Experimental, Risk Aversion, Auctions, Lottery / Includes bibliographical references. / R. Mark (Robert Mark) Isaac, 1954-, Professor Directing Dissertation; Doug Stevens, Outside Committee Member; Timothy Salmon, Committee Member; David Macpherson, Committee Member.

This dissertation is a collection of three essays which utilize experimental methods to examine three non-pecuniary factors which influence employee work effort. The first looks to understand how a telecommuting environment may affect productivity. In an effort to cut costs and improve worker morale, corporations are increasingly turning to telecommuting. Conflicting reports exist though on the effects that working outside the office has on productivity which directly affects a company's bottom line. Creative and mundane individual tasks were used to mimic two extreme work climates. Results of this study indicate that the telecommuting environmental effects may have positive implications on productivity of creative tasks and negative implications on productivity of mundane tasks. The second looks to understand how workers faced with a social dilemma similar to a work-team environment respond to observing punishment of someone else. Punishment has been shown to be an effective reinforcement mechanism. Intentional or not, punishment will likely generate spillover effects that extend beyond one's immediate decision environment, and these spillovers are not as well understood. We seek to understand these secondary spillover effects in a controlled lab setting using a standard social dilemma: the voluntary contributions mechanism game. We find that spillovers from punishment lead to either more or less cooperative behavior depending on the history of play. If subjects have direct experience with a punishment mechanism, they will contribute more to the public good after observing others' punishment. The reverse is true of those who observe others' punishment but have no exposure to direct experience with punishment. The final essay explores how social distance between an employee and a manager may affect the work effort of employees when they are competing for rewards given out by their manager. In an employer/employee relationship, this difference in social distance between the employer and the various employees leads to a disadvantageous situation for the socially distant workers when raises, promotions, special considerations etc. are given. Since social distance is present in most organizations, understanding how employees' work effort changes in response to changes in social distance is of upmost importance. In prior literature, this disadvantage has always been assumed to lead to lower effort than the advantaged worker. Experimental tests of these lines of tournament theories have shown this is the case when the disadvantage is induced. It remains unclear however if this result holds when the disadvantage is not induced. The results indicate that females are much more sensitive to social distance between themselves and a manager where those socially close to the manager contribute much more than females who are not while there is no difference in the behavior of males based on social ties. / A Dissertation submitted to the Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Summer Semester, 2011. / Date of Defense: June 28, 2011. / Experimental Economics / Includes bibliographical references. / Timothy Salmon, Professor Directing Dissertation; Douglas Stevens, Committee Member; David Cooper, Committee Member; Mark Issac, Committee Member; Dmitry Ryvkin, Committee Member.