Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 1982. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY / Bibliography: leaf 196. / by Adam Lerrick. / Ph.D.

Project (M.A.) - Simon Fraser University, 2004. / Theses (Dept. of Economics) / Simon Fraser University. Also issued in digital format and available on the World Wide Web.

Thesis (Ph. D.)--UCLA, 2009. / Vita. Description based on print version record. Includes bibliographical references (leaves 135-138).

This dissertation is entitled "Essays in the International Economics of Credit and Banking". It comprises three essays. The first essay develops an empirical model of international credit with moral hazard and the risk of repudiation to examine (i) the determinants of the intertemporal and cross-national variations in credit ceilings and (ii) the channels through which output attracts foreign credit. It reports that productivity is the most important variable in attracting credit, followed by education, and then physical capital. Furthermore, international trade, country financial risk ratings, and geography explain more than 60% of the cross-national variations in credit ceiling. Therefore, international relations and investment in education and productivity-enhancing institutions are crucial in attracting foreign credit. / The second essay develops open-economy variants of the old Friedman-Schwartz and the new Lucas-Sargent-Wallace monetarist models to investigate the puzzle of monetary neutrality. The essay further introduces financial aggregation theories into the models. It studies the theoretical and business-cycle relationships between real output and financial aggregates, interest rates, exchange rate, and prices using Canadian quarterly data for the period 1959: 1 to 2002: 1. It reports that the open-economy variants of the monetarist models with aggregation-theoretic financial aggregates perform the best in producing significant sign patterns that are predicted by theory. Furthermore, Monte Carlo experiments show that large percentage of real output variance is explained by shocks to aggregation-theoretic financial aggregates relative to other variables. Thus, there is no difference between the effects of anticipated and unanticipated monetary shocks. / The third essay examines the appropriate formulation of the monetary aggregate for the Nigerian economy for the period 1970:1-2000:4 for the determination of real output. This examination covers simple sum, variable elasticity of substitution (ves), and divisia (dv) aggregation over currency, demand deposits, and savings deposits. The user cost of liquid assets is employed in the construction of both the dv and the yes aggregates. Using maximum likelihood estimation technique, the essay reports that, for the Nigerian economy, currency does as well as or better than any narrow- or broad-money measure in explaining industrial production. Further, the simple sum m1 and m2 outperformed both the yes and dv aggregates. Therefore, monetary policy in Nigeria should focus on the supply of currency and/or of narrow money, rather than on broad money or the divisia aggregates.

This thesis examines the interaction between real and financial decisions in a two-country world economy. To understand this interaction, we develop two-country general equilibrium multi-period models of pure exchange and production economies. We model the real decisions of consumption and investment choice and the financial decisions of portfolio choice explicitly under various degrees of financial market integration. In addition, we allow the governments to act strategically in making their policy choice regarding the degree of integration in the international goods and financial markets. Therefore, our models allow us to examine the effect of the interaction between real and financial decisions on policy choice in the goods and financial markets. The main results in the thesis are presented in Chapters 3, 4 and 5. We first analyse how the optimal tariff decision may vary under different financial market structures. In order to do so, we determine the government's choice of tariff level using a two-good general equilibrium framework where the financial structure in the economy is explicitly modelled. We find that the extent to which of financial markets are integrated affects trade policy decisions in the commodity markets. Specifically, we find an inverse relationship between the Nash equilibrium tariff level and the degree of international financial market integration. The intuition underlying this result is as follows. In our model, the government uses tariffs to cause a favourable change in the terms of trade. However, in the presence of financial markets, households can hedge endowment risks and the change in the terms of trade by using financial contracts. Thus, the favourable terms of trade effect (which is the motivation for a tariff in our model) associated with a tariff levy is reduced with increasing degrees of financial integration. Given the influence of financial market structure on endogenous trade policy, we then characterise and numerically compute the welfare gains from financial market integration. We identify the welfare gains from two sources. The direct source is the gain from risk-sharing in the financial markets. The second source is the gain from free trade in the commodity market that results from a government's tariff game in the presence of complete financial integration. We find that the magnitude of the welfare gain due to free trade is substantially greater than that due to increased risk-sharing capabilities under a reasonable calibration of our world economy. Thus far, we have assumed the financial market segmentation in the economy to be exogenous and our results suggest that the existing financial market structure has important repercussions in the-commodity markets. In the third part of our analysis, we analyse the government's choice of financial market structure. To do this, we examine the equilibrium policy choice of financial market segmentation in the absence of trade policy. That is, under what conditions will a country find it optimal to limit access to its own or foreign capital markets? Our results suggest that in the special case in which the production technology exhibits constant returns to scale in capital, each country may choose to deny foreign access to its domestic stock market. In general however, we find that complete financial market integration will be the optimal choice for both countries. Our main finding is that there are strong interactions between financial markets and goods markets. Consequently, the optimal tariff level can be very different under different financial market structures. Also, the welfare impact of opening financial markets can be large, given the influence of financial market structure on endogenous tariffs in the goods markets. Finally in a production economy, the optimal financial market structure can be related to the nature of the production technology. Some policy recommendations follow from our work. First, the existing financial market structure in the economy should be considered in making the policy choice of a tariff level: the more integrated the financial markets, the lower the optimal tariffs. Second, the share of capital in a country's production technology is an important factor in the decision of the optimal financial market structure. When the production technology exhibits decreasing returns to scale in capital, the optimal financial structure is complete integration.

Thesis (Ph. D.)--University of Washington. / Bibliography: l. [189]-194.

Thesis (Ph. D.)--Claremont Graduate School, 1990. / Typescript (photocopy). Includes bibliographical reference (leaves 227-231).

Thesis (Ph. D.)--University of California, Santa Cruz 2002. / Typescript. Includes bibliographical references (leaves 101-108).

The following analysis is an attempt to apply some of the concepts of current monetary theory to the question of demand for international liquidity. The essay is, however, limited to the liquidity and development problems of developing countries. Available statistical evidence for the period between 1951 and 1964 indicates that the developing countries, excluding the major oil-producing countries, have experienced a continued decline in their ratios of reserves to imports -a common measure of the "adequacy" of international reserves. This trend, it has been suggested, seems to imply that the developing countries have been facing a liquidity crisis of their own, quite apart from the more widely discussed problem of the inadequacy of international liquidity in the world context. Various explanations for this liquidity crisis have been offered, all of which seem to fall into one of three categories: viz., what may be termed as a) the "profligacy" hypothesis, b) the "stage of growing pains" hypothesis, and c) the "primitive" rational choice hypothesis. Not all economists agree on which hypotheses are important; neither are they sure of the exact relation between them. In our analysis, the first hypothesis is rejected for not doing full justice to the analysis of the problems involved; on the other hand, the other two are accepted as suggestive but incomplete since they are not bound together into any consistent theory. It is the purpose of this essay to develop a consistent theoretical structure based on the alternative hypothesis that: "as a matter of circumstantial policy", it might be rational choice on the part of a developing economy to utilize some of its accumulated stock of reserves to finance development expenditures. Our analysis starts from the proposition that a monetary authority (developing country) can choose a level of reserves it will hold. As a result, if the drawing down or accumulation of reserves is a deliberate action on its part, then in principle, a demand function for reserves can be specified. Of course, the "primitive" rational choice model suggests this but our main contribution lies in the extension of their framework by applying that branch of monetary theory known as the theory of portfolio selection. In this way, we are able to base the whole analysis of the demand for reserves on the theory of the precautionary demand for money in a world of uncertainty. Our basic approach, therefore, differs from that of the more common analyses which are based on a flow approach of the transaction demand for money, e.g., the quantity theory of money. Indeed, the application of the portfolio theory offers the interesting paradoxical result that the developing countries have a low precautionary demand for reserves even though their reserve needs seem to be great. It is further found that by maintaining low reserve levels, these countries choose a risky portfolio; but that such a choice might be a rational economic behaviour because there is a simultaneous expectation that, other things being equal, drawing down reserves to finance investment in capital formation may lead to future increases in per capita consumption. No attempt is made to subject our alternative hypothesis to any testing. That presently will lie outside the scope of this essay. From a policy standpoint, however, the alternative hypothesis suggests that the quantity of reserves demanded at a particular moment of time can affect the terms on which some developing countries will invest in capital formation (that is, finance development expenditures), although it is not only this variable that can do so. Secondly, it demonstrates that, given the growth problems of developing countries, it might pay if the monetary authorities utilize some of the country's accumulated stock of reserves to finance development expenditures. Finally, we conclude that the costs of development in developing countries can be minimized if more liberal measures were effected to provide for a larger inflow of capital aid to these countries both from developed countries and other international institutions concerned with development aid. The same notion applies to the policies underlying these countries' drawings in the credit tranches at the International Monetary Fund. / Arts, Faculty of / Vancouver School of Economics / Graduate

This thesis examines the interaction between real and financial decisions in a two-country world economy. To understand this interaction, we develop two-country general equilibrium multi-period models of pure exchange and production economies. We model the real decisions of consumption and investment choice and the financial decisions of portfolio choice explicitly under various degrees of financial market integration. In addition, we allow the governments to act strategically in making their policy choice regarding the degree of integration in the international goods and financial markets. Therefore, our models allow us to examine the effect of the interaction between real and financial decisions on policy choice in the goods and financial markets. The main results in the thesis are presented in Chapters 3, 4 and 5. We first analyse how the optimal tariff decision may vary under different financial market structures. In order to do so, we determine the government's choice of tariff level using a two-good general equilibrium framework where the financial structure in the economy is explicitly modelled. We find that the extent to which of financial markets are integrated affects trade policy decisions in the commodity markets. Specifically, we find an inverse relationship between the Nash equilibrium tariff level and the degree of international financial market integration. The intuition underlying this result is as follows. In our model, the government uses tariffs to cause a favourable change in the terms of trade. However, in the presence of financial markets, households can hedge endowment risks and the change in the terms of trade by using financial contracts. Thus, the favourable terms of trade effect (which is the motivation for a tariff in our model) associated with a tariff levy is reduced with increasing degrees of financial integration. Given the influence of financial market structure on endogenous trade policy, we then characterise and numerically compute the welfare gains from financial market integration. We identify the welfare gains from two sources. The direct source is the gain from risk-sharing in the financial markets. The second source is the gain from free trade in the commodity market that results from a government's tariff game in the presence of complete financial integration. We find that the magnitude of the welfare gain due to free trade is substantially greater than that due to increased risk-sharing capabilities under a reasonable calibration of our world economy. Thus far, we have assumed the financial market segmentation in the economy to be exogenous and our results suggest that the existing financial market structure has important repercussions in the-commodity markets. In the third part of our analysis, we analyse the government's choice of financial market structure. To do this, we examine the equilibrium policy choice of financial market segmentation in the absence of trade policy. That is, under what conditions will a country find it optimal to limit access to its own or foreign capital markets? Our results suggest that in the special case in which the production technology exhibits constant returns to scale in capital, each country may choose to deny foreign access to its domestic stock market. In general however, we find that complete financial market integration will be the optimal choice for both countries. Our main finding is that there are strong interactions between financial markets and goods markets. Consequently, the optimal tariff level can be very different under different financial market structures. Also, the welfare impact of opening financial markets can be large, given the influence of financial market structure on endogenous tariffs in the goods markets. Finally in a production economy, the optimal financial market structure can be related to the nature of the production technology. Some policy recommendations follow from our work. First, the existing financial market structure in the economy should be considered in making the policy choice of a tariff level: the more integrated the financial markets, the lower the optimal tariffs. Second, the share of capital in a country's production technology is an important factor in the decision of the optimal financial market structure. When the production technology exhibits decreasing returns to scale in capital, the optimal financial structure is complete integration. / Business, Sauder School of / Graduate