I analyze the correlation between a nation leader’s foreign education experience and their nation’s GDP growth and economic freedom in African, Asian, and South American countries. There is a statistically significant correlation between a leader’s foreign education and the country’s GDP growth rate, especially in Africa. Data also shows that a leader’s foreign education is positively correlated with his country’s economic freedom. Despite the fact that the regressions can only demonstrate correlation as opposed to causation relationships among variables, further analysis of the results concludes that a leader’s education and the country’s development are reciprocal. The findings of this paper shine light on future policy directions for developing countries.

This thesis aims at contributing to the existing studies in the dynamic stochastic general equilibrium model, particularly in the new Keynesian models, on three aspects. It consists of three chapters. Chapter 2 is on “Dynamic new Keynesian Life-Cycle Model.” Chapter 3 is on “Re-thinking Price Stability in an Economy with Endogenous Firm Entry: Real Imperfections under Product Variety.” Chapter 4 is on “Growth Expectation.” Abstracts of each Chapter are as follows. In Chapter 2, we first construct a dynamic new Keynesian model that incorporates life-cycle behavior a la Gertler (1999), in order to study whether structural shocks to the economy have asymmetric effects on heterogeneous agents, namely workers and retirees. We also examine whether considerations of life-cycle and demographic structure alter the dynamic properties of the monetary business cycle model, specifically the degree of amplification in impulse responses. According to our simulation results, shocks indeed have asymmetric impacts on different households and the demographic structure does alter the size of responses against shocks by changing the trade-off between substitution and income effects. In Chapter 3, we re-think price stability in an economy with endogenous firm entry under possible distortions. We first demonstrate that endogenous entry causes real imperfections. Reflecting fluctuations in the number of varieties, the gap between the natural and the efficient level of output is no longer constant and variant to shocks. As a result, the central bank faces a trade-off between stabilizing inflation and welfare-relevant output gap. Then, we show that this results in the non-zero optimal rate of inflation. We further check whether welfare can be enhanced by targeting welfare-based inflation instead of cross-sectional average inflation contrary to the previous findings. Simulations even with such distortions as unknown natural interest rate or no fiscal remedy for efficient non-stochastic steady states, however, support cross-sectional average inflation targeting although there may exist some small gains by referring also to welfare-based inflation rates. Incomplete stabilization may enhance welfare in an economy when agents cannot internalize the externality on the love for variety. Chapter 4 is about the difficulty in producing reasonable business cycles for the expectation shock about higher future technology. For a long time, changes in expectations about the future have been thought to be significant sources of economic fluctuations, as argued by Pigou (1926). Although creating such an expectation-driven cycle (the Pigou cycle) in equilibrium business cycle models was considered to be a difficult challenge, as pointed out by Barro and King (1984), recently, several researchers have succeeded in producing the Pigou cycle by balancing the tension between the wealth effect and the substitution effect stemming from the higher expected future productivity. Seminal research by Christiano et al. (2007a) explains the “stock market boom-bust cycles,” characterized by increases in consumption, labor inputs, investment and the stock prices relating to high expected future technology levels, by introducing investment growth adjustment costs, habit formation in consumption, sticky prices and an inflation-targeting central bank. We, however, show that such a cycle is difficult to generate based on “growth expectation,” which reflect expectations of higher productivity growth rates. Thus, Barro and King’s (1984) prediction still applies.

Why and under what conditions do governments borrow before elections? This thesis aims to shed light on this question by exploring governments' incentives that give rise to political budget cycles, i.e. fluctuations in the budget balance during election times, under different political, institutional, and economic contexts. The argument will be developed in three stages. First, the thesis will explain why politicians may choose to use debt strategically to win elections and discuss and evaluate different models that can explain political budget cycles. One model, a moral hazard type competence model is, as will be shown, particularly suited for this study. It will be extended in stages two and three. The second stage will look at the benefits and costs from public debt, with a particular emphasis on the likelihood of re-election (government popularity), party system polarisation, and sovereign risk. Sovereign risk increases the cost of borrowing and thus dampens the magnitude of political budget cycles; the effect of government popularity on strategic debt is conditional on the degree of polarisation. The third stage will take the motives to borrow as given and examine the effectiveness of debt as a strategic instrument. The less voters attribute responsibility for fiscal policy to governments, the less effective debt is as a strategic instrument. Economic volatility, regulatory density, and economic openness, this thesis argues, reduce this effectiveness and in turn the political budget cycle. Similarly, coalition government reduces responsibility associated with individual coalition partners, and thus the strategic value of public debt - yet this effect is moderated by the distribution of cabinet portfolios. The argument in this thesis is based both on formal models and on empirical, time series-cross sectional, analyses. It is arguably the most comprehensive treatment of political budget cycles and adds to an increasing literature on the contextual determinants of fiscal policy.

This thesis studies the optimal conduct of unconventional monetary policy in the form of purchases of long-term government debt by the central bank and, motivated by this policy tool, the evolution of long-term government debt holdings in household portfolios over the course of the life cycle. It is comprised of three self-contained chapters. The first chapter investigates whether it can be beneficial for central banks to use the unconventional tool even when the main policy rate is not constrained by the zero lower bound. A friction in the interaction between households and banks allows central bank purchases of long-term government debt to reduce long-term interest rates and thus to stimulate economic activity. If debt purchases and conventional short-term interest rate policy are coordinated in an appropriate way, the central bank is able to reduce the volatility of output and inflation. In the second chapter, the role that unconventional monetary policy can play in a currency union is analysed. A model is laid out, in which two countries form a currency union with a common central bank but separate and uncoordinated fiscal policy institutions. When monetary policy is implemented only through the common short-term interest rate, the central bank is unable to respond effectively to country-specific shocks. Due to segmentation in the market for long-term government debt, the yield on long-term debt can differ across countries. As a result, a monetary policy authority that can rely on bond purchases is able to address idiosyncratic shocks reflected in volatility of the natural terms of trade more effectively and to achieve higher welfare than one that cannot make use of this instrument. The final chapter studies the long-term government bond share in household portfolios over the course of the life cycle. US data from the Survey of Consumer Finances suggests that participation in the market for long-term government debt first increases and later decreases as agents approach the retirement age. The portfolio share conditional on participation is non-decreasing over the working life. These stylised facts can be explained by means of a portfolio choice model in which agents are subject to aggregate risk through asset returns as well as idiosyncratic risk through labour income and the stochastic events of retirement and death.

This thesis is divided into two main parts. The first provides a novel analysis of dynamic optimal taxation under the assumption that individuals in an economy have ‘hidden’ idiosyncratic productivity levels. Specifically, it shows how to derive a complete set of optimality conditions characterising the solution to a problem of this kind. The method relies on constructing perturbations to the consumption-output allocations of agents in a manner that preserves all relevant incentive compatibility restrictions. We are able to use it to generalise the ‘inverse Euler condition’ to cases in which preferences are non-separable between consumption and labour supply, and to prove a number of novel results about optimal income and savings tax wedges. The second main part investigates a more general problem. When policymakers are constrained in their present choices by expectations of future outcomes a well-known time-inconsistency problem hinders optimal decision-making: the preferences of policymakers who exist at different points in time are not in agreement with one another, because of differences in the constraints faced by each. We present a new approach to determining policy in this setting, based on asking: What policy would be chosen by a decisionmaker who did not know the time period in which their choice was to be implemented? This is akin to designing institutions from behind a Rawlsian ‘veil of ignorance’. The theory is used to obtain qualitative policy prescriptions across a number of environments; these policies have several appealing properties that we outline.

The changing character of the economic environment in the last quarter of the twentieth century has resulted in a continuous process of restructuring in the economy of Spain, mediated through the structure and regulatory framework of the economy. Three specific themes contributing to restructuring are addressed: globalisation of the economy, European integration, and the role of the public sector. Globalisation ofthe economy is demonstrated through increased international flows of goods, capital, people and information, and by the incorporation of businesses in Spain within the corporate networks of foreign multinational companies. Spanish businesses too have been extending their global reach, especially into Latin America. European integration has been part of the globalisation process. A substantial proportion of international flows are now concentrated within the European Union and business networks have been adapting to the 'Single European Market'. European integration has dominated economic policy, first in measures to secure membership of the European Economic Community, then in measures to adjust to the regulatory environment of the European Community and finally in the race to achieve the Maastricht criteria. The role of the public sector in restructuring has been to 'manage' the market forces unleashed by the liberalisation ofthe economy. Market forces, embracing increased competition and technological change, have driven the restructuring process demanding responses from the government. These responses have increasingly been constrained by the shedding of responsibilities upwards to international organisations and downwards to lower tiers of administration. Isolation, protection and goverrunent intervention in the economy have given way to a more liberal, open and international environment. Transformation in the mode of regulation from state corporatism to neo-liberalism has been accompanied by globalisation of the economy, particularly integration into the European economy and the corporate space of multinational companies. Nevertheless, despite the growing emphasis on globalisation, public policy continues to play a crucial role influencing the pace, if not the direction, of restructuring.

In this collection of essays, I explore three topics where space and distance plays a fundamental role in international economics. Not only do spatial considerations affect the pattern of trade, the frictions that arise from distance also determine where and how goods are produced and where people live. In Chapter 1, I show that human made locational characteristics can determine the spatial allocation of economic activity. I take the standard core-periphery model and add endogenous housing to its forward-looking dynamic adjustment process. By introducing a model of adjustment with an extra state variable, which I interpret as housing, I show that the distribution of housing allows the model to converge to a unique spatial equilibrium. This explains the observed persistence and robustness of economic agglomerations in the data. Chapter 2 is a theory of task assignment in the production of final goods and across countries. By allowing for tasks to differ in their suitability of being used in the production of multiple goods, my model endogenizes the allocation of tasks in the production of goods that use them. The resulting equilibrium task allocation defines the pattern of off-shoring. Tasks that are used in only one good concentrate in the country with a specialization in production of that good. Tasks used in many goods are allocated across countries, with the more substitutable tasks located in the country with the larger overall output. Gains from off-shoring are derived from a better mix of allocation of tasks into goods as well as larger scale of production. Finally in Chapter 3, I study how real exchange rate fluctuations determine the size and composition of the export sector. Using the methodology set out in Dixit and Pindyck (1994) in a heterogeneous firms model, I determine the set of trigger real exchange rates for entry and exit into exporting. My primary result of this chapter is that exchange rate uncertainty coupled with sunk cost of entry causes hysteresis in the number and productivity of exporting firms. I then extend the model to allow free entry of firms. This explains the stylized fact of the existence of non-exporting firms with higher productivity than some exporting firms.

This thesis employs two new approaches to explain some of the important debates in two key economic fields: labour market economics and macroeconomic studies related to current account imbalances. Chapter 1, Chapter 2 and Chapter 3 begin a new strand of research by introducing the normal inverse Gaussian (NIG) distribution to describe unobserved heterogeneity in the labour market. The NIG distribution can be represented as a normal variance-mean mixture with the inverse Gaussian (IG) distribution as the mixing distribution. A 0.01% subsample of the 1980 US Census, comprising all men between 18 and 65 who are in the labour force, as well as a comparable sample from Ghana, is used to show that the NIG distribution provides a better fit of the log earnings function than the normal distribution. The prediction of right skewness of the log earnings distribution arising from the log normal skill Roy selection model is rejected in favour of left skewness. The thesis then extends the model to describe the distribution of log earnings conditioned on education. The same two datasets (US males and Ghanaian males) are used for the empirical analysis. We find that, once the unobserved heterogeneity is accounted for, the return to education is almost flat for lower levels of education in Ghana, and then increases for education levels greater than ten years. One of the key differences between the two datasets is that skewness and unobserved heterogeneity is a function of education for Ghana but not for the US. The NIG framework is found to be a useful tool to model this heterogeneity. Chapter 4 uses a model that allows for a rich structure of age effects similar to those predicted by the life cycle theories to argue that the demographic shifts are partly responsible for the sustained rise in the US current account deficit and the rapid increase in China's current account surplus in the last decade. However, demographics do not have an impact on the long run equilibrium or level of current accounts. Rather, they are important determinants of the short run adjustment of current accounts to their equilibrium levels. In the next twenty years, the demographic shifts are likely to push towards further current account positive adjustments in China and current account negative adjustments in the US. Developing the infrastructure, financial markets, policy tools and regulatory settings to be able to cope with the excess capital flow remains an urgent task.

Thesis advisor: Fabio Ghironi / My dissertation develops a set of tools for introducing heterogeneity into economic models in an analytically tractable way. Many models use the representative agent framework, which greatly simplifies macroeconomic aggregation but abstracts from the heterogeneity we see in the real world. In my research, I move away from the representative agent framework in two key ways. First, my work in international macroeconomics incorporates heterogeneity via idiosyncratic shocks across countries. Second, my work on financial frictions employs asymmetric information between lenders and borrowers. In both of these areas, my goal is to examine the implications of heterogeneity in the most tractable way possible. Crucially, these insights can be incorporated into the models currently used by academics and central banks for policy analysis. The first chapter of my dissertation, "Price Stability in Small Open Economies," joint work with Mikhail Dmitriev, studies the conduct of optimal monetary policy in a continuum of small open economies. We obtain a novel closed-form solution that does not restrict the elasticity of substitution between home and foreign goods to one. Using this global closed-form solution, we give an exact characterization of optimal monetary policy and welfare with and without international policy cooperation. We consider the cases of internationally complete asset markets and financial autarky, producer currency pricing and local currency pricing. Under producer currency pricing, it is always optimal to mimic the flexible-price equilibrium through a policy of price stability. Under local currency pricing, policy should fix the exchange rate. Even though countries have monopoly power, the continuum of small open economies implies that policymakers cannot affect world income. This inability to influence world income removes the incentive to deviate from price stability under producer currency pricing or a fixed exchange rate under local currency pricing, and prevents gains from international monetary cooperation in all cases examined. Our results contrast with those for large open economies, where interactions between home policy and world income drive optimal policy away from price stability or fixed exchange rates, and gains from cooperation are present. The second chapter of my dissertation, "The Optimal Design of a Fiscal Union'', joint work with Mikhail Dmitriev, examines the role of fiscal policy cooperation and financial market integration in an open economy setting, motivated by the recent crisis in the euro area. I show that the optimal design of a fiscal union is governed by the degree of substitutability between the export goods of different countries. When countries produce goods that are imperfect substitutes they should harmonize their income taxes to prevent large terms of trade externalities. On the other hand, when countries produce goods that are close substitutes, they should organize a contingent fiscal transfer scheme to insure against idiosyncratic shocks. The welfare gains from the optimal fiscal union are as high as 5\% of permanent consumption when countries are able to trade safe government bonds, and approach 20\% of permanent consumption when countries lose access to international financial markets. These gains are especially large for countries like Greece that produce highly substitutable export goods and who cannot raise funds on international financial markets to insure against downside risk. The results illustrate why federal currency unions such as the U.S., Canada and Australia, with income tax harmonization and built-in fiscal transfer arrangements, withstand asymmetric shocks across regions much better than the euro area, which lacks these ingredients at the moment. The third chapter of my dissertation, joint work with Mikhail Dmitriev, studies macro-financial linkages and the impact of financial frictions on real economic activity in some of my other work. Beginning with the Bernanke-Gertler-Gilchrist (1999) financial accelerator model, a large literature has shown that financial frictions amplify business cycles. Using this framework, Christiano, Motto and Rostagno (AER, 2013) show that shocks to financial frictions can explain business cycle fluctuations quite well. However, this literature relies on two ad hoc assumptions. When these assumptions are relaxed and agents have access to a broader set of lending contracts, the financial accelerator disappears, and shocks to financial frictions have little to no impact on the economy. In addition, under the ad hoc lending contract inflation targeting eliminates the financial accelerator. These results provide guidance for monetary policymakers and present a puzzle for macroeconomic theory. / Thesis (PhD) — Boston College, 2014. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

O comércio internacional tem adquirido crescente importância para a economia brasileira, em particular para o agronegócio. Deste modo, o entendimento de políticas públicas de outros países que afetem o comércio internacional e o impacto das mesmas em nosso país é de grande importância. A União Européia é um dos principais parceiros comerciais do Brasil e é conhecida pela profunda interferência que impõe ao seu setor agropecuário. Tal fato tem impacto em outros países, inclusive o Brasil, que tem despontado como competidor no mercado internacional de produtos que a UE subsidia. A expansão da União Européia em 2004 e a reforma de sua Política Agrícola Comum têm sido estudadas em diferentes regiões do mundo. Utilizando a modelagem de equilíbrio geral, este trabalho pretende analisar o impacto da expansão da União Européia no agronegócio brasileiro. Os resultados mostram que as diferentes políticas da UE impactam a produção e a exportação do agronegócio brasileiro. / International trade has acquired increasing importance for the Brazilian economy, especially for agribusiness. In this way, understanding other countries policies that affects international trade and its impacts in our country is equally important. The European Union is one of the most important Brazilian trade partners and it is known by its strong interference on its agricultural sector. This fact has an important impact on other countries, including Brazil. The recent European enlargement and its Common Agricultural Policy Reform has been studied at different regions of the World. This research project aims to assess the impacts of European Union Enlargement on Brazilian agribusiness using a General Equilibrium Model. It was found that the different EU agricultural policies affect the Brazilian agribusiness performance.