This thesis will explore the current relationship between the United Kingdom and the European Union. There is a high degree of public discontent in the UK over current membership and I will seek to answer the question: is continued membership in the interest of the UK? I will analyze this question from both an economic and political perspective examining the overall degree of linkage and key arguments for and against continued EU membership on a number of issues including trade, labor, foreign direct investment, and political/foreign relations. To conclude, I propose an alternative solution through a multi-speed European Union.

This dissertation examines the behavior of the exchange rate under two different scenarios. The first one is characterized by, relatively, low inflation or a situation where prices adjust sluggishly. The second is a high inflation economy where prices respond very rapidly even to unanticipated shocks. In the first one, following a monetary expansion, the exchange rate overshoots, i.e. the nominal exchange rate depreciates at a faster pace than the price level. Under high levels of inflation, prices change faster than the exchange rate so the exchange rate undershoots its long run equilibrium value. The standard work in this area, Dornbusch (1976), explains the overshooting process in the context of perfect capital mobility and sluggish adjustment in the goods market. A monetary expansion will make the exchange rate increase beyond its long run equilibrium value. This dissertation expands on Dornbusch's model and provides an analysis of the exchange rate under conditions of currency substitution and price flexibility, characteristics of the Peruvian economy during the hyper inflation process that took place at the end of the 1980's. The results of the modified Dornbusch model reveal that, given a monetary expansion, the change in the price level will be larger than the change in the exchange rate if prices react more than proportionally to the monetary shock. We will expect this over-reaction in circumstances of high inflation when the velocity of money is increasing very rapidly. Increasing velocity of money, gives rise to a higher relative price variability which in turn contributes to the appearance of new financial (and also non-financial) instruments that report a higher return than the exchange rate, causing people to switch their demand for foreign exchange to this new assets. In the context of currency substitution, economic agents hoard and use foreign exchange as a store of value. The big decline in output originated by hyper inflation induces people to sell this hoarded money to finance current expenses, increasing the supply of foreign exchange in the market. Both, the decrease in demand and the increase in supply reduce the price of foreign exchange i.e. the real exchange rate. The findings mentioned above are tested using Peruvian data for the period January 1985--July 1990, the results of the econometric estimation confirm our findings in the theoretical model.

This dissertation provides an analytical framework to study the political economy of policy reform in the Dominican Republic during the nineties. Based on a country study, I develop two theoretical models that replicate the mechanisms of policy approval in developing countries with weak democracies. The first model considers a pro-reform President who submits a tariff bill to an anti-reform Congress dominated by the opposition party. In between, two opposing lobbies try to get their favored policy approved. Lobbies act as Stackelberg leaders vis a vis a weak President. The behavior of the Congress is determined exogenously while the lobbies act strategically pursuing the approval of the reform bill and indirectly affecting the President's decision. I show that in such a setting external agents like the Press play an important role in the decision-making process of the political actors. The second model presents a similar framework. However, the President, who is a Stackelberg leader, is allowed only two choices, total reform or status-quo. I show how a lobby reacts to an increase in its rival's or its own size. These reactions depend on the President's level of commitment to the reform. Finally, I discuss the effect of variations in the size of the lobbies on the President's choice. The model suitably explains real events that took place in the Dominican Republic in the mid-nineties.

Thesis (Ph.D.)--Boston University / My dissertation consists of three papers on international finance, international economics, and labor economics. The first paper develops a stochastic general equilibrium model to understand the effects of default risk on output, consumption, investment, and current account deficits in emerging markets. The second paper studies how market structure affects exchange-rate pass-through. This analysis is empirical as well as theoretical, using a partial equilibrium model. The third paper develops a model to study relative wages across different educational levels in developed countries. The model in my first paper features endogenous default risk. Its calibration results explain a number of important stylized facts about emerging economies, including the negative correlation between investment and net exports, the procyclicality of investment, and the potential for current account reversals. The second paper compares exchange-rate pass-through under perfect competition and oligopoly, showing that the two different market structures have opposite effects on this currency pricing behavior. The paper's empirical test, whether implemented on the basis of a partial equilibrium framework or on the model's general equilibrium framework, finds support for perfect competition. The third paper uses differences within and across industries m education wage premiums to study factors affecting those premiums. The paper begins by showing that within-industry as opposed to cross-industry educational wage premiums explain most of developed country differences in wages by education. It then develops a theoretical model and an empirical testing strategy, using U.S. and Japanese data, to examine whether the use of IT capital and the decision to outsource affect the education-wage premium. The answer is mixed depending on the country in question.

Cross-listing refers to firms listing their equities on more than one stock exchange. Cross-listing is an interesting topic of international finance. This is because along with the deeper integration of the global financial market, we should see lesser importance of geographic factors. Thus, the motivations and effects of listing a firm on exchanges of different regions should have essential economic implications. The reputation bonding hypothesis suggests that U.S. cross-listing improves the information environment of a firm because of the higher disclosure standard and more analyst coverage. The legal bonding hypothesis argues that U.S. cross-listing improves the investor protection and corporate governance of a firm since the firm is under more stringent law and regulation. The firm growth hypothesis points out that U.S. cross-listing lowers the external capital cost of a firm and thus enables the firm to achieve a higher growth rate. Using a sample with 12532 firms of 23 developed regions from 2006 to 2011, this thesis tests the three hypotheses of cross-listing. Firstly, my empirical results show that a cross-listing on the U.S. exchanges improves the equity returns predictability of institutional investors. I find a stronger positive correlation between the changes in institution ownership level and future equity returns of U.S. cross-listed firms. This suggests that the information environment is improved after a U.S. cross-listing. However, the improvement in information environment exists only in non-crisis period. Secondly, the results support the firm growth hypothesis. The U.S. cross-listing event only has a positive effect on equity returns of firms with younger age and lower dividend yield. This effect becomes less obvious during the crisis period. Thirdly, the legal bonding effect of U.S. cross-listing only exists during the crisis period, when the financial market is volatile. During the crisis period, a U.S. cross-listing increases the equity returns of the firms form non-common-law regions, but not the firms from common-law regions.

The first chapter studies the effects of government capital accumulation on sovereign debt default risk and debt restructuring renegotiation outcomes when a government has limited ability to extract revenues from households. To do so, this chapter develops a quantitative dynamic stochastic general equilibrium model of sovereign default, debt renegotiation, and fiscal policies, where the government chooses between the fiscal expenditures of government consumption and government investment. Government capital provides an additional means of adjustment in the face of a bad productivity shock. It also affects the government's incentive to re-access the international credit market when the government chooses to default. The model delivers three key predictions: (1) a higher level of government capital implies less risky sovereign debt and higher recovery rates when the government chooses to default; (2) a high debt to output ratio is sustainable with a sufficient level of government capital; (3) fiscal adjustment that reduces public investment may be self-defeating. The second chapter investigates the empirical facts that government expenditures and taxes are procyclical in developing countries but countercyclical or acyclical in developed economies. This chapter provides a possible explanation for this stylized fact by introducing news about future total factor productivity and endogenous fiscal policy in an otherwise-standard small open economy model of sovereign default risk, as in Arellano (2008). News tends to be more precise in developed countries, which relaxes credit constraints on foreign borrowing and makes developed countries less reliant on tax revenues. This dampens and potentially reverses the high correlation between output and government expenditures/taxes observed in developed countries. The third chapter studies the impact of creditors' income process on the outcomes of sovereign debt restructurings. This chapter compiles a new dataset on foreign creditors' income process during negotiation. This chapter shows that when foreign creditors are facing high income, restructurings are protracted and result in smaller haircuts. To explain these stylized facts, this chapter develops a dynamic stochastic general equilibrium model of defaultable debt that embeds multi-rounds negotiations between a risk-averse sovereign and risk-averse creditors. The quantitative analysis shows that high creditors' income results in a longer duration of restructuring and higher haircuts.

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This dissertation investigates the effects of commodity disturbances on underlying economies. The analysis conducted in this dissertation comprises of two main themes. The first is investigating which commodity disturbances affect a country's GDP. I examine twenty three OECD countries and nineteen primary commodities in the energy, metal, food and timber sectors using a New Keynesian model that was estimated using the DSGE method. It was found the oil disturbances and to a lesser extend natural gas were the only commodity disturbances that affect a country's GDP. Also, it was found that a country's openness plays an important role in shaping the response to these shocks. The second theme expands on these findings by analyzing the effects of oil and gas disturbances on Trinidad and Tobago by asking (1) How long are the effects from oil and gas disturbances on the economy? (2) How do the long-run effects from oil and gas disturbances differ within the economy? VECM and SVEC methods were used, and the results show that the effects from an oil disturbance are larger in magnitude and duration when compared to a gas disturbance. In addition, the effects of oil and gas disturbances had opposite movements on Trinidad and Tobago's CPI, interest rate, and narrow money velocity, whereas both disturbances were positively correlated in regards to Trinidad and Tobago's output and effective real exchange rate in the long-run.

This thesis is concerned with macroeconomic dynamics under various forms of uncertainty. Chapter 2 recognizes that the information flow from the interest rate is impeded when the nominal interest rate hits the zero lower bound. This impediment can (a) increase the duration of zero lower bound episodes and (b) bring about more persistent deflationary pressure. Moreover, it can make the exit from the zero lower bound disorderly. Chapters 3 and 4 are concerned with dynamics of aggregate variables under Knightian Uncertainty. To overcome difficulties with expectations formation under Knightian Uncertainty, the agents follow Interactive Trial and Error Learning (ITEL) (Young, 2009; Pradelski and Young, 2012) to choose investment portfolios. This involves learning by occasionally experimenting with new actions even when the current action proves to be good. Two applications of ITEL are presented. Chapter 3 deals with the growth of aggregate variables. The growth model can match several business cycle features of the US real aggregate wealth data. Chapter 4 considers a portfolio choice problem. The portfolio choice model can match the first two moments of the US real excess return of equity over bonds almost perfectly. Chapter 5 explores “This Time Is Different Syndrome” of Reinhart and Rogoff (2009) in a setting where the agents are learning under Knightian Uncertainty. The agents are grouped into different generations and their models compete in terms of forecasting power. The predecessor’s model is discarded together with the data set when its forecasting power is worse than the current generation’s model. This loss of relevant data is rooted in focusing only on forecasting well in the short-run. By shifting the weight towards finding the true model of the economy, this problem can be substantially reduced.

My dissertation encompasses three different topics on empirical international trade and migration. The first chapter investigates the short run effects of regional trade agreements on trade costs. It is widely accepted that the reinforcement of Regional Trade Agreements (RTAs) aiming at trade costs reduction among trade partners requires time. This paper investigates the effects of RTAs on trade costs over time by using unique micro-price data. We confirm that having an RTA on average lowers trade costs significantly. Furthermore, data shows significant and negative effects of RTAs on trade costs over time. Specifically, besides the initial impact on trade costs, having an RTA continuously lower trade costs every year after the commencement of the RTA. The second chapter decomposes the overall effects of gravity variables on trade through three gravity channels: duties/tariffs (DC), transportation-costs (TC), and dyadic-preferences (PC). Compared to the existing literature, additional channel of PC is introduced and shown to dominate the other two channels, with adjacency contributing about 45 percent, distance about 32 percent, colony about 14 percent, free trade agreements about 7 percent, and language about 2 percent. The results imply that gravity variables mainly capture the effects of demand shifters rather than supply shifters (as implied by the existing literature). The third chapter utilizes an immigration inflow data set from OECD countries during the period of 1984 to 2015 to shed light on how institutional quality affects the immigration rate. With the analysis in the fixed-effects framework, we construct a set of country-time specific institutional quality indexes to examine their effects on the immigration rate. The paper shows that other than the network effects, GDP difference, and migration costs, institutional qualities in both destination and source countries matter when it comes to potential migration decisions. Specifically, better socioeconomic conditions in the destination countries, and worse foreign debt, budget balance, government stability, internal conflicts, and corruption conditions in the source countries increase the immigration inflow.