I study bailout policy in open economies and the relationship between openness and institutions. Chapter 1 studies jointly optimal bailout policy and monetary policy in open economies. I document that countries with larger foreign currency liability/GDP ratio before financial crises underwent larger currency devaluation, inflation and bailout in crises. I build a quantitative open economy model with both nominal rigidities and financial frictions. Using the model, I show that in a world without bailout while currency mismatch effect is present, larger foreign currency liability before crises calls for smaller currency devaluation in crises, embracing the notion of ``fear of floating''. The incorporation of optimal government bailout, whose cost needs to be financed by inflation tax, can overturn the above negative relationship between foreign currency liability and currency devaluation, delivering results consistent with the empirical findings. Finally, I use firm level data to show that whether firms suffer from currency mismatch effect or not during crises hinges on their chance of obtaining bailout. Chapter 2 examines the joint dynamics of private and public external debt for countries. We develop a model with the co-occurrence of banking crisis and sovereign debt crisis in open economies, formalizing Reinhart and Rogoff (2011) findings ``from financial crash to debt crisis". External interest rate spikes or sudden stop shocks force banks to cut down debt position and fire-sale capital. The existence of frictions in bank equity market creates incentives for the government to initiate a bailout. The government bails out banks by increasing external borrowing and implementing fiscal austerity to undo inefficiencies in the private sector. Under optimal bailout scheme, the model generates diverging external debt dynamics for the private sector and the government during a crisis, as we document in the European data. Finally, we investigate two rationales for ex-ante macro-prudential regulations on private external debt: fire-sale externalities between banks and moral hazard by banks.Chapter 3 (joint with Shang-Jin Wei) explores the relationship between openness and institutions. Quality of public institutions has been recognized as a crucial determinant of macroeconomic outcomes. We propose that a country's intrinsic level of openness (due to population size, geography, or exogenous trade opportunities) affects its incentives in investing in better institutions. We present a simple theory and extensive empirical evidence validating the role of intrinsic openness in determining institutional quality. This suggests an indirect but important channel for globalization to improve welfare by raising the quality of institutions.

This dissertation combines micro-level empirical analyses and general equilibrium models to study the issues of output price, price-cost markup, and business cycle dynamics. In the first chapter, I study how a credit crunch affects output price dynamics. I build a unique micro-level dataset that combines scanner-level prices and quantities with producer information, including the producer's banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers' failure as a quasi-experiment and find that firms facing a negative credit supply shock decrease their output prices approximately 15% relative to their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and to generate additional cash flow from the product market. I find strong empirical support for this hypothesis: (i) firms facing a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) this effect is stronger for firms and sectors with high initial inventory or small initial cash holdings. To discuss the aggregate implications of these findings, I integrate this micro-level study into a business cycle model by explicitly allowing for two identical groups of producers facing different degrees of credit supply shock. The model predicts that a negative credit supply shock leads to a large temporary drop in aggregate inflation---as a result of the aggressive liquidation of inventory---followed by an increase in inflation as producers eventually run out of inventory. This prediction for inflation and inventory dynamics is fully consistent with observations for the 2007-09 recession. In the second chapter, I study price-cost markup cyclicality. Existing empirical evidence on price-cost markup cyclicality is mixed. I find that markups are procyclical unconditionally, and procyclical conditional on demand shock using a flexible production function. The estimated production function features a larger input complementarity than that in a tightly parametrized production function (Cobb-Douglas and CES), producing both greater efficiency and higher markups during an expansion. These results have two striking implications: (i) much of the cyclicality in markups arises from input complementarity, rather than nominal rigidity, and (ii) the U.S. economy behaves as if it has increasing returns to scale. The third chapter studies the business cycle with a Translog production function. We empirically identify a complementarity between labor and energy that leads to procyclical returns to scale, which is not compatible with the tightly parameterized production function commonly used in the literature (Cobb-Douglas and CES). We, therefore, propose a flexible Translog production function that not only features complementarity-induced procyclical returns to scale but is also consistent with a balanced growth path. A simple calibrated business cycle model with the proposed production function generates strikingly data-consistent dynamics following demand shock without relying on either nominal rigidities or countercyclical markups. Our model also produces a stronger amplification effect than the model without complementarity. We then incorporate our production function into a benchmark medium-scale New Keynesian model (Smets and Wouters 2007) and repeat the business cycle accounting exercise. We find that input complementarity leads to a more dramatic decrease in the role of ''suspicious shocks" than of ''structural shocks."

This dissertation contains three essays in International Macroeconomics. The first two chapters study clustered sovereign defaults, the default events where multiple countries default in a relatively short period of time. In spite of the fact that clustering of defaults is a recurring phenomenon, there is a lack of empirical as well as quantitative research focusing on clustered defaults. Therefore, the first two chapters try to uncover the the nature of shocks and the mechanism through which these shocks lead countries to clustered defaults. The first chapter uses the data on 146 sovereign defaults from 1975 to 2014 and categorizes one-third of these defaults as clustered default episodes. It then asks if the nature of shocks that drive clustered defaults differ from those that drive idiosyncratic defaults. I find that global variables, global shocks to transitory component of output of the countries and world interest rate fluctuations, play a crucial role in predicting clustered default events: for clustered default episodes, the predicted probability of default goes up by two-and-a-half times after the inclusion of global variables as explanatory variable. Idiosyncratic defaults, on the other hand, are not influenced by the presence of global variables as explanatory variable in the specification, and the predicted probability of default remains unchanged. Motivated by the finding of the first chapter, the second chapter builds a quantitative framework to study clustered defaults. The chapter begins with a joint estimation of structural parameters that drive the output process of 24 countries and a process for the world interest rate. The postulated output process includes transitory and permanent global components, as well as transitory and permanent country-specific components. I then build a sovereign default model augmented with financial frictions at the firm level. The model and the estimation process of driving forces are validated jointly when the shocks, estimated independently of the model or of default data, are fed into the model and the model reproduces the clustered default of 1982. The two main findings of the chapter are: (1) the primary driver of clustered defaults is global shock to the transitory component of output; and (2) contrary to what is commonly believed, the Volcker interest rate hike was not a decisive factor for the 1982 developing country debt crisis. The third chapter looks at one of the key financial frictions in emerging and poor economies—the presence of credit constrained households—and the way they affect consumption-to-output volatility ratio in these countries. A higher than one ratio of consumption-to-output volatility in emerging and poor countries is at odds with the observation that emerging and poor countries are also the countries where a big fraction of consumers do not have access to financial services. This is because consumers with no access to financial services cannot smooth consumption and can only have a consumption volatility to output volatility ratio of one. Therefore, in the presence of credit constrained households, the consumption volatility to output volatility ratio in the theoretical models should move closer to one rather than going up and away from one. This chapter, therefore, incorporates credit constrained households in an augmented real business cycle (RBC) model to study their effect on economic fluctuations in a set on 75 countries.

This work aims to explain the performance of the Brazilian economy throughout the period of the Great Depression. We propose a general equilibrium, open economy model in which the Brazilian government can improve the terms of trade by taking advantage of Brazil\'s monopolistic position in international coffee markets. It burns a share of coffee production in order to influence international prices, thus containing the impact of the Great Depression on the domestic economy\'s supply of foreign consumption and investment goods. We find that our coffee burning mechanism is capable of improving the performance of the economy for some of our assumptions about the share of coffee that is destroyed. Our models also fits with different degrees of success the data on international coffee prices. / Este trabalho objetiva explicar a performance da economia brasileira durante o período da Grande Depressão. Nós propomos um modelo de equilíbrio geral com economia aberta no qual o governo brasileiro consegue melhorar os termos de troca ao se aproveitar da posição monopolística do Brasil nos mercados internacionais de café. Ele queima uma parcela da produção de café para influenciar os preços internacionais, assim contendo o impacto da Grande Depressão sobre a oferta de bens de consumo e investimento importados da economia doméstica. Nós descobrimos que o mecanismo de queima do café é capaz de melhorar a performance da economia sob algumas de nossas hipóteses sobre a parcela de café que é destruída. Nossos modelos também se ajustam com diferentes graus de sucesso aos dados sobre os preços internacionais do café.

Os três artigos que compõem esta Tese possuem em comum a discussão da macroeconomia e o mercado de trabalho, para a investigação de problemas específicos. Desta forma, esta Tese busca preencher importantes lacunas presentes na literatura nacional e internacional. O primeiro artigo analisa os ciclos do desemprego brasileiro a partir de dados de fluxo de trabalhadores obtidos a partir da Pesquisa Mensal de Emprego (PME-IBGE). Usamos a abordagem proposta por Shimer (2007), que tenta controlar para eventual viés decorrente da agregação temporal nos dados do mercado de trabalho. Os dados brasileiros sugerem que a margem de ingresso para o desemprego (margem de separação) tem grande relevância para explicar os ciclos da taxa de desemprego no Brasil no período de março de 2002 a dezembro de 2010. Tais resultados indicam que o Brasil, relativamente a alguns países desenvolvidos, apresenta um mercado de trabalho com características mais próximas de um contexto com baixa regulamentação, ou seja, que o ingresso (e não a saída) no desemprego seria o principal responsável por sua flutuação. Além disso, a dinâmica da margem de separação, em relação a indicadores de atividade (PIB e Taxa de Desemprego), tem um comportamento claro (anticíclico e pró-cíclico, respectivamente), respondendo com um trimestre de antecedência com relação à taxa de desemprego. O segundo artigo analisa o papel da heterogeneidade no mercado de trabalho ao longo dos ciclos de negócio no Brasil. O comportamento cíclico da mão de obra dá sinais de mudanças em sua composição qualitativa. Tais indícios, encontrados na PME, se basearam no comportamento cíclico relativo de emprego e salário real/hora a partir de diferentes coortes: grau de escolaridade, tempo de trabalho e idade. Usando um arcabouço de busca de emprego com destruição endógena, nos moldes de Mortensen e Pissarides (1994), ilustramos que quanto maior a heterogeneidade na economia menor será a correlação entre salário real e desemprego. Por fim, o último artigo utiliza o modelo de DSGE proposto por Galí et al. (2011) - que faz o uso da taxa de desemprego e, assim, evita a Crítica de Lucas - a fim de (i) identificar quais fricções são importantes para captar as flutuações das séries macroeconômicas no Brasil, em especial da taxa de desemprego; (ii) averiguar se a série de desemprego traz informações úteis ao modelo; e (iii) discutir como choques de produtividade se manifestam sobre a taxa de desemprego. Os resultados sugerem, em relação aos dados da economia brasileira, melhor acurácia do modelo com todas as fricções (exceção às indexações salariais). Além disso, a presença da taxa de desemprego muda a ordem de importância das fricções, dando maior importância às fricções reais. As decomposições de variância realizadas indicam que choques de markup salarial perdem importância à custa, principalmente, dos choques de prêmio de risco. O uso da taxa de desemprego permite que choques de preferência sejam identificados e passem a explicar os ciclos. Por fim, funções de resposta ao impulso bayesianas sugerem que o desemprego é negativamente afetado por choque de produtividade, resultado decorrente de reduções da demanda de trabalho. / The three articles that compose this thesis have in common the discussion of macroeconomics and the labor market, for the investigation of specific problems. Thus, this thesis seeks to fill important gaps in the national and international literature. The first article analyzes the cycles of Brazilian unemployment from workers flow data obtained in Pesquisa Mensal de Emprego (PME-IBGE). We use the approach proposed by Shimer (2007) that attempts to control for possible bias due to temporal aggregation in labor market data. Brazilian data suggest that the margin of entry into unemployment (separation margin) has great relevance to explain the cycles of unemployment rate in Brazil from March 2002 to December 2010. These results indicate that Brazil, relatively to some developed countries, has a labor market with characteristics much closer to a context with low regulation, that is, entering (not leaving) unemployment would be primarily responsible for its fluctuation. Moreover, the dynamics of the separation margin, in relation to activity indicators (GDP and Unemployment Rate), has a clear behavior (anti-cyclical and procyclical, respectively), responding with a quarter in advance regarding the unemployment rate. The second article examines the role of heterogeneity in the labor market over the business cycle in Brazil. The cyclical behavior of the labor-work gives signs of qualitative changes in its composition. Such indications, found in the PME, were based on the cyclical behavior of employment and real wage/hour from different cohorts: level of education, tenure and age. Using a framework of job search with endogenous destruction, along the lines of Mortensen and Pissarides (1994), we illustrate that the greater heterogeneity in the economy, the lower the correlation between real wages and unemployment. Finally, the last article uses the DSGE model proposed by Galí et al. (2011) - which makes use of the unemployment rate and thus avoid the Lucas Critique - in order to (i) identify which frictions are important to capture the fluctuations of the series of macroeconomic fluctuations in Brazil, especially in the unemployment rate; (ii) determine whether the series of unemployment brings useful information to the model, and (iii) discuss how productivity shocks manifest themselves on the unemployment rate. The results suggest, in relation to the data of the Brazilian economy, the better accuracy of the model with all frictions (except for wage indexation). Moreover, the presence of unemployment rate changes the order of importance of frictions, giving greater weight to real frictions. The variance decompositions performed indicate that wage markup shocks become less important at the expense mainly of the risk premium shocks. The use of the unemployment rate allows preference shocks to become identified and to explain the cycles. Finally, impulse response functions Bayesian suggest that unemployment is negatively affected by productivity shock, a result due to reductions in labor demand.

Thesis. 1975. Ph.D.--Massachusetts Institute of Technology. Dept. of Urban Studies and Planning. / Bibliography: p. 52-53. / Ph.D.

Yes / Although the eurozone sovereign debt crisis took many by surprise following the Global Financial Crisis induced Great Recession, this chapter argues that this was an accident waiting to happen with unjustified emphasis placed upon unproven rules and institutions derived from contemporary neoliberal macroeconomic thinking. First, recent developments in macroeconomic are discussed and evaluated in terms of the so-called New Consensus Macroeconomics (NCM) that forms the current mainstream macroeconomic model comprising a blend of New Classical and New Keynesian theories is through adopting the rational behaviour hypothesis and supply-side-determined long-term equilibrium of output. A particular feature of these ideas is the inclusion of rules and institutions that are perceived to result in time consistent policymaking through essentially binding politicians from undertaking in non-optimal behaviour for either opportunistic, partisan or non-rational expectations reasons. Second, in addition to the general backdrop of macroeconomics the chapter considers the notion of a monetary union between countries under the rubric of both exogenous and endogenous Optimum Currency Area (OCA) theory. This combination of theoretical propositions form the bedrock of the eurozone where the TEU convergence criteria and SGP form the rules, while the European Central Bank is the key institution tasked with delivering low and stable price inflation. However, although these notions have become the staple diet of a generation of mainstream economists they comprehensively failed to insulate the eurozone from its sovereign debt crisis. / Full text of this chapter will be released for public view at the end of the publisher embargo on 1 Nov 2019.

In recent years, Bitcoin has gained global mass adoption as an asset class. However, due to its characteristics of peer-to-peer direct borderless payment, anonymity and limited supply, Bitcoin has a special application in regions experiencing political and economic turmoil. It serves two functions: store of value and secure channel of transferring assets abroad. In this paper, I will only investigate the correlation between Bitcoin adoption and fiat default in Venezuela due to a limitation on empirical data. Time series FGLS regressions are employed to examine such correlation. The two Bitcoin metrics, Real Bitcoin Price in Venezuelan Bolivar (VEF) and Real Bitcoin Trading Volume in VEF, are included as independent variables. The two economic indicators, the Black Market Exchange Rate (VEF/USD) and Monthly Moving Inflation Rate, are included as explanatory variables. I find a relatively weak correlation between Bitcoin adoption and the well-being of the Venezuelan Economy. The Black Market Exchange Rate has a stronger positive impact on Real Bitcoin Price and Real Bitcoin Trading Volume while Inflation Rate has little impact. In addition, Real Bitcoin Volume responses to the changes the Venezuelan Economy approximately one week slower than Real Bitcoin Price.

This dissertation contributes to the current understanding of labor markets, focusing on the use of micro level data and computational modeling to study the interaction of unemployment with various aspects of the macroeconomy. I address the fact that frictions in the labor market carry over into other dimensions of firms' and workers' decisions, such as a firm's incentive to utilize its current labor force, workers' participation in the labor market, and the decision to acquire or discharge debt. In Chapter 1, I study involuntary part-time employment over the business cycle. I document that the population at work part-time for economic reasons ($PTE$) is countercyclical, volatile, and transitory. Workers in $PTE$ are nearly three times more likely than the unemployed to return to full-time work in a given month, and seven times more likely than full-time workers to become unemployed. Using household survey data, I demonstrate that cyclical fluctuations in $PTE$ come from changes in the transition rates between full-time and part-time employment rather than between part-time and unemployment. Moreover, these movements are primarily due to within-job changes in hours. Accordingly, I model part-time work focusing on a firm's decision to hire, fire, or partially utilize its labor force. Firms in the model are heterogeneous in size and productivity, and are subject to search frictions. The model produces firm-level utilization of part-time employment which is consistent with observed worker flows, and varies across the size and age distributions of firms. Over the business cycle, the model matches the observed relative volatility of unemployment and $PTE$. Part-time labor utilization by firms increases the volatility of vacancies and unemployment in the model relative to the case with only an extensive margin. Chapter 2 studies the interaction of a participation margin in a labor market search model. Introducing a participation margin of whether or not to actively search for a job requires the use of large idiosyncratic shocks to workers' participation incentives in order to match monthly labor flows in the data. If we measure the participation transitions of workers outside of employment where search decisions are observable and apply this same transition process to employed workers, any search model will overstate the transition of workers out of employment to nonparticipation. Allowing the participation transition of workers to depend on their employment state fixes these flows, but this transition process is unobservable for employed workers. Taking advantage of the longer panel of the 1996 Survey of Income and Program Participants, I estimate the markov process for participation transitions of employed workers using their observed search behavior before and after an employment spell. The difference in the transition process measured for employed and nonemployed workers is consistent with an interpretation of attachment to the labor force. I build a directed search model with a labor force participation margin subject to employment-dependent shocks and show that it can match the labor market flows in US data. Chapter 3, which is jointly authored with Chander S. Kochar, investigates the effects of student loans on labor market outcomes. The student loan market is the second largest source of household debt in the United States, with $1.2 trillion in outstanding debt. Unlike other sources of unsecured credit, student loans cannot be discharged in bankruptcy. Using data on college graduates from the 1993/03 Baccalaureate and Beyond Longitudinal Study, we first identify that student loan debt has a significant negative effect on students' earnings after graduation. We show that the inability to discharge debt in bankruptcy is critical to produce this result within a simple search theoretic framework. We propose a richer model with student loan debt and a delinquency/default decision to study the effects of recent changes to student loan policies on the labor market and delinquency outcomes of college graduates.

In incomplete market models, agents with homothetic preferences over one non-durable consumption good and exposed to idiosyncratic income shocks use precautionary savings as an instrument to smooth consumption across different contingencies. The magnitude and role of precautionary savings is therefore essential in the understanding of savings behavior of agents in such an economy. In this dissertation, I study the effects of consumption commitments on aggregate savings behavior within an otherwise standard incomplete market framework. In the first chapter, I explore the impact of a consumption commitment good like housing in an incomplete market framework (Aiyagari(1994), Huggett(1997)). Conceptually, I concentrate on the argument whether consumption of housing is associated with changes in risk aversion and therefore reflected in precautionary savings behavior of agents. I study an analytical framework that captures key elements in the data like (i) heterogeneity in earnings through fixed effects and uninsurable idiosyncratic shocks, (ii) fraction of income spent on housing, (iii) magnitude of moving costs. In the second chapter, I present a dynamic incomplete market model with a key feature: a commitment good (housing) with positive transaction (moving) costs. I focus on a stationary recursive equilibrium for agents in the benchmark economy. I calibrate the benchmark model to the US economy. I find that the benchmark economy replicates (i) the fraction of income spent on housing services, (ii) the fraction of people moving in each period. In the third chapter, I quantitatively evaluate the magnitude of precautionary savings in the presence of housing consumption in the benchmark economy and compare it to the standard incomplete market model. Results indicate that the presence of housing leads to higher aggregate precautionary savings by nearly 13% when compared to the Aiyagari specification. I find transaction costs to have significant impact on aggregate savings behavior.