Thesis advisor: Peter N. Ireland / This dissertation deals with the macroeconomic implications of fiscal policy in small open economies with a particular emphasis on emerging economies. I use both empirical and theoretical approaches to distinguish key difference in the design of fiscal policy between emerging and developed economies. I also analyze the macroeconomic consequences of differences in the conduct of fiscal policy. Thus, the dissertation is focused on the interplay between fiscal policy and business cycle dynamics. Recent policy challenges in developed economies, such as monetary authorities grappling with the zero lower bound on short run nominal rates and fiscal stimulus packages emerging as an important policy tool, have sparked renewed academic interest in the topic of fiscal policy and business cycles. Institutional and macroeconomic features in emerging economies make the macroeconomic aspects of fiscal policy an important research agenda and one to which this dissertation contributes. A number of papers have documented fiscal policy pro-cyclicality in terms of stronger co-movement between government expenditure and macroeconomic fundamentals in emerging and developing economies. This feature of the data raises 2 important questions: 1) does fiscal policy reinforce the macroeconomic cycle in these countries leading to heighten macroeconomic volatility ("when it rains, it pours"), and 2) is the fiscal stance in these economies due to unique macroeconomic features or is it the consequence of institutional and political imperfections? The first chapter, titled "When it rains, it pours": fiscal policy, credit constraints and business cycles in emerging and developed economies, sets out to answer these questions by comparatively studying a group of developed and emerging economies. I estimate a panel structural vector autoregressive model to investigate if government consumption expenditure responds more pro-cyclically to fundamentals and what role international financial conditions play for the fiscal stance and for the volatility of the cycle in emerging and developed economies. My findings suggest that the response to output fluctuations is not systematically different for emerging governments relative to their developed counterparts. However, emerging governments curtail spending in response to increases in the sovereign borrowing rate which forces their consumption expenditure to act more pro-cyclically. I find evidence of higher fiscal discretion in emerging economies. However, the efficacy of government consumption expenditure is substantially lower in emerging than in developed economies. Thus, fiscal policy ends up being responsible for a lower share of business cycle volatility in emerging than in developed economies. In the second chapter, titled Estimating the Dynamics of Fiscal Financing in Emerging Economies, I propose a strategy for estimating the government financing rule for an emerging economy. The estimation uses the structural VAR impulse responses obtained in the previous chapter to discipline the parameters of a small open economy real business cycle model with a public sector. The parameters can be split into two groups: those influencing the effectiveness of fiscal policy and the parameters governing the financing of the exogenous stream of government consumption. The empirical response to interest rate shocks puts restrictions on the first group of parameters governing the size of the multiplier. The empirical response to a government consumption shock can be used to obtain estimates of the fiscal policy rule. I construct a model with a role for both interest rate shocks and government consumption shocks. A natural estimation approach in this case is impulse response matching. / Thesis (PhD) — Boston College, 2018. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This thesis investigates the role of intangible capital and intangible investment (the intangibles) in explaining modern economic activity. It presents an in depth analysis of the context in which the intangibles are studied in the economic literature, and modifies existing theoretical real business cycle (RBC) models to account for the presence of the intangibles. The newly developed models are further used to address previously documented issues such as the Canadian productivity puzzle and the quantity anomaly. Chapter 1 provides a detailed explanation of the concept of the intangibles in the economic literature. It also highlights the importance of accounting for the intangibles during economic analysis and presents a detailed analysis of how they are measured and modeled in practice. The main findings indicate that the intangibles have contributed positively to economic growth and productivity. The need for improvements in the measurement and modeling of the intangibles is also identified. Specifically, there is a need to improve the estimates of the depreciation rates and price deflators that are used in the measurement of intangible assets; and a need for proper model specification testing to validate the inclusion of the intangibles when modeling economic activity. Chapter 2 explores the role of the intangibles in explaining business cycles in a small open economy. The benchmark two-sector model developed in this chapter is tailored to the Canadian economy and allows for the examination of the relationship between intangible investment and the trade balance, which has not been attempted to date in the RBC literature. Overall, this chapter finds that technological change in the production of intangible investment plays an important role in explaining labour productivity and business cycles in a small open economy. Simulations based on the benchmark two-sector model highlight the circumstances under which the trade balance to business sector output ratio tends to be procyclical. The extended model is further used to make predictions about the Canadian productivity puzzle, where the main findings reinforce the need to re-evaluate the traditional measure of productivity in business cycle models. Chapter 3 is motivated by the rising levels of intangible investment in the U.S. and Europe. These investments have been expensed in the national accounts rather than capitalized (unmeasured investment) and this practice has resulted in the traditional measures of investment, productivity and output underestimating their true levels. In order to investigate the economic impact of this practice in an international setting, the standard two-country business cycle model is extended to include such intangibles. The main results imply that the traditional measures of output and labour productivity differences across countries are understated when intangible investment is not properly accounted for. The modeling of intangible investment also improves the fit of the model based upon recent data on international business cycles. This is most evident in the international correlation of investment, which the standard model predicts to be low (0.13) and the extended model correctly predicts to be high (0.66) as seen in the data (0.74). / Dissertation / Doctor of Philosophy (PhD)

Abstract: Taiwan has limited resources graphically, so 97% of primary energy source is dependent on import. Industrial sectors are the main sources to Taiwanese economic development since the 1970s, and the oil is the base of the industries, therefore, the fluctuation of world oil price will lead to the fluctuation of domestic business cycles. Besides, Taiwanese economy has highly depended on international trade; therefore the international business cycles also have influence on the domestic business cycles. Furthermore, the international trade accounts for substantial percentage of balance of international payment. Thus, the change in the international trade will also have impact on Taiwanese economy. This paper investigates the influence of international business cycles to the Taiwanese economy. Using a structural vector-autoregressive model (SVAR model) of a small open economy (OE), our SVAR model includes industry product index (IP) of three regions (Asia, Europe, and North America), world oil price, the Taiwanese industry product index and the Taiwanese trade balance. We try to understand how these factors and their variance decompositions explain Taiwanese business cycles. We chose two periods to do the analysis¡G1974:01-1984:01 and 1985:01-2002:04. To summarize, Taiwanese business cycles were much more impacted by the factors from itself. Besides, we can also say that the impact is neither from nominal nor from real variables. Domestic shocks will be more important in explaining Taiwanese economy. Taiwan has limited resource and depends on import; however, the government will control the oil price. Therefore, we conclude that the world oil price does not have huge impact on Taiwanese economy during our studying period. Asian shocks maybe have more influence than other regions on Taiwanese economy gradually during our studying period.

Business cycle is an important issue for economist. Because the fluctuations of product and employment have deep influences on people¡¦s life and social stability, almost every government tries to reduce the volatility of national business cycles. If we want to make it, we must realize it first. Since countries communicate with each other more frequently in recent decades, the volatility of national product cycles is not only influenced by domestic economic variables but also foreign ones. The purpose of this paper is to analyze the effect of transmission mechanism on international business cycles synchronization (BCCs). The major purpose of this paper is to analyze the effect of international vertical specialization on BCCs among industrial countries. There are two kinds of effect. One is indirect effect. Vertical specialization happens between industrial countries and developing countries, so it can reduce bilateral trade intensity among industrial countries. Through this way, BCCs among industrial countries will reduce. The other one is direct effect. Vertical specialization changes the economic structure of industrial countries. Industrial countries can focus on product development and market research. This kind of economic structure is less capital intensive, which lessens the effect of common shocks to industrial country¡¦s business cycles. BCCs among industrial countries will reduce. We measured the effect using the data from G6 (Canada, France, Germany, Japan, UK and US). The result is consistent with our inferance. Vertical specialization can reduce BCCs by reducing bilateral trade intensive among industrial countries. There is a negative relation between Vertical specialization and BCCs among industrial countries.

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本文建構一個兩國並結合銀行之 DSGE 模型，旨在瞭解銀行資本與放款利差於國際景氣傳遞過程的機制。中間財廠商必須向銀行融通資金以購買資本財。本文假設廠商償還資金時存在違約衝擊，即銀行不一定能完全回收貸放總額。銀行資本水準又會影響放款利差的高低，進而改變廠商生產決策。本文以此機制連結金融與實質部門探討當違約衝擊發生時，除了對本國的影響之外，又會如何衝擊外國經濟體系。本文發現，本國違約衝擊的確會導致兩國景氣同時步入衰退，成功地捕捉兩國之產出、投資與放款呈現下降的現象。此外，本國若採行緊縮性貨幣政策，外國經濟體系也會遭受威脅。 / The objective of this study is to investigate the international transmission mechanism of the role of banking sector. We propose a Dynamic Stochastic and General Equilibrium model of a two-country two-bank world with nominal rigidity. Bank lends funds to entrepreneurs to purchase capital. The banking capital position has influence on loan rate spreads which can affect the real economic activities. Financial impact is originated from entrepreneur defaulting on their borrowings. The calibration results show that a country-specific financial shock causes international crisis. Furthermore, a negative monetary policy shock also drives simultaneous recession across countries.

This doctoral dissertation proposes methodologies which, from a linear or a non-linear approach, accommodate to the information flow and can deal with a large amount of data. The empirical application of the proposed methodologies contributes to answer some of the questions that have emerged or that it has potentiated after the 2008 global crisis. Thus, essential aspects of the macroeconomic analysis are studied, like the identification and forecast of business cycles turning points, the business cycles interactions between countries or the development of tools able to forecast the evolution of key economic indicators based on new data sources, like those which emerge from search engines.