This dissertation consists of three chapters, each containing a distinct research paper in the field of macroeconomics. In the first chapter, I estimate the impact of mutual fund flows on corporate bond prices, issuance and firm investment. I leverage variation caused by the COVID-19 induced financial panic of March 2020 and find that safer firms suffered a larger impact in the component of bond spreads that does not compensate for expected default risk. However, I do not detect impacts of fund flows on issuance or investment. A simple model predicts liquidation decisions and price responses as being driven by demand and liquidation elasticities, which depend on the characteristics of the bond return processes. In the second chapter, we ask: what is the importance of firm and bank credit factors in determining investment responses to monetary policy? We decompose variation in corporate loan growth rates into purely firm-level and bank-level variation. The estimated factors are correlated with a set of variables that proxy for the firm’s and bank’s financial health. Firms with a higher borrowing factor experience relatively larger investment responses to an unexpected interest rate shock; the effect is muted when the shock is the reveal of central bank information. The bank factor does not induce similar heterogeneity in investment responses. In the third chapter, we ask: what is the nature of optimal monetary policy and central bank disclosure when the monetary authority is uncertain about the economic state? We consider a model in which firms make nominal pricing decisions and the central bank sets the nominal interest rate under incomplete information. We find that implementing flexible-price allocations is both feasible and optimal despite the existence of numerous measurability constraints; we explore a series of different implementations. When monetary policy is sub-optimal, public information disclosure by the central bank is welfare-improving as long as either firm or central bank information is sufficiently precise.

The study of macroeconomics and finance has evolved tremendously over the last few decades---significant advancements have taken place in both gaining access to an increasing scale and scope of observational, policy and private data, as well as empirical methods to derive novel economic insights from such data. In this dissertation, I attempt to shed light on three problems broadly across macroeconomics and asset pricing, taking a data-driven approach to answer them. For the first essay, we construct a novel dataset which captures the geographic incidence of government revenues and expenditures. Government revenues and expenditures revenues and expenditures occur on three different levels in the United States: local, state, and federal. At all levels, government revenues and expenditures add and subtract resources from the private sector. The dataset encompasses all revenues and expenditures at the county-level and thus allows to see the net resource allocation through the government. We use this dataset to document several new facts about the relationship between economic activity and the resource allocation by the government. The governments' resource allocation is generally redistributive. That is, levels and changes of median income are associated with the level and changes of net resources. Second, we evaluate response of governmental revenues and spending in response to the China shock. We find a decline in total governmental receipts in counties that are hardest hit, while a muted response of total governmental spending. The aggregate response conceals a lot of heterogeneity: a decomposition at the governmental level shows an increase in expenditures and lower receipts at the federal level; at the local and state level we find a simultaneous reduction of receipts and spending. The latter is a consequence of the balanced budget constraint. Overall, total government spending is approximately constant while total receipts are falling. As a result, the insurance function of the federal government is offset by a reduction at the state and local level which renders total government spending neutral to the China shock. This stands in contrast to prior research which has focused on the federal response. In our second essay, we attempt to answer the question---how should an investor value financial data? The answer is complicated because it depends on the characteristics of all investors. We develop a sufficient statistics approach that uses equilibrium asset return moments to summarize all relevant information about others' characteristics. It can value data that is public or private, about one or many assets, relevant for dividends or for sentiment. While different data types, of course, have different valuations, heterogeneous investors also value the same data very differently, which suggests a low price elasticity for data demand. Heterogeneous investors' data valuations are also affected very differentially by market illiquidity. Lastly, in the third essay, we examine the economic impact of droughts on asset markets, specifically on land valuation. Specifically, we focus on farmland valuations in California---one of the most productive farmlands in the world. The semi-arid climate makes its valuation particularly sensitive to the amount of surface and groundwater water available for irrigation. The detailed administrative transaction data from the counties' assessor offices allows us to estimate repeat sales indices as opposed to a hedonic model which make our results less likely to be affected by omitted variables. We find that parcels with better access to freshwater see a larger appreciation in land values from 2011 to 2020; whereas we find no statistical significant differential price change between 2000-2011. The differential change in land values points towards large economic effects of water scarcity with beliefs about future climatic conditions being updated due to two severe episodes of drought and signals of legislative willingness to curb groundwater overdraft.

[pt] Este artigo investiga a dinâmica do mercado domésticos de derivativos cambiais no Brasil, que possui comportamento atipicamente ativo comparado a outros mercados emergentes. Especificamente, nós examinamos as consequências de sua estrutura contrastanto os mercados Deliverable Forwards, os mercados Non-Deliverable Forward estrangeiros e os mercados Domestic Non-Deliverable Forward predominantes no Brasil. Nosso modelo incopora interações entre consumidores domésticos e estrangeiros nos mercados cambiais a vista e a termo, ao lado de intermediários financeiros e um governo restrito por orbrigações e dívidas em moeda estrangeira. Nossos resultados apontam que sob dívida externa controlada e baixo risco externo, esses mercados analizados tem funcionamento equivalente. Por outro lado, o surgumimento de risco de conversibilidade rompe esta equivalência, o que é particularmente evidente em cenários similares à experiência brasileira em 2002. / [en] This paper investigates the distinctive dynamics of Brazil s domestic currency derivatives market, which exhibits remarkable activity compared to other emerging markets. Specifically, we examine the consequences of this market structure by contrasting Deliverable Forward markets, Offshore NonDeliverable Forward markets, and the prevalent Domestic Non-Deliverable Forward markets in Brazil. Our model incorporates interactions between domestic and foreign consumers in spot and forward markets, alongside financial intermediaries and a government constrained by foreign currency debts and obligations. We find that under controlled external debt and minimal external risk, these markets function equivalently. However, the emergence of convertibility risk disrupts this equivalence, particularly evident in scenarios similar to Brazil’s experiences in 2002.

Diese Arbeit umfasst drei Kapitel, die die Debatte über Zentralbankpolitik, insbesondere im Hinblick auf transnationale Dimensionen, bereichern. Dabei zielt das Projekt darauf ab, die bestehende Literatur zu ergänzen, indem es ein besseres Verständnis der internationalen Geldpolitik unter Einsatz mikroökonomischer Daten fördert. Das erste Kapitel untersucht, wie sich die Geldpolitik der Europäischen Zentralbank (EZB) auf den Lohnquote auf Unternehmensebene auswirkt, und legt nahe, dass die Wirksamkeit der Geldpolitik von der Arbeitsintensität der Produktion abhängt. Die Ergebnisse fließen in die politische Debatte über Transmission und Umverteilungseffekte der Geldpolitik ein. Das zweite Kapitel liefert empirische Belege dafür, dass die Geldpolitik im gesamten Euro-Gebiet den industriellen Wettbewerb auf den lokalen Märkten beeinflusst. Die Ergebnisse deuten darauf hin, dass eine Verschärfung des geldpolitischen Kurses mit einem Rückgang des Wettbewerbs verbunden ist (und umgekehrt), und dass dieser Effekt beträchtlich und signifikant ist. Dieses Kapitel unterstreicht, dass niedrige Zinssätze den Marktwettbewerb und antimonopolistische Tendenzen in einem Umfeld der bankbasierten Kreditvergabe unterstützen können. Das dritte Kapitel beleuchtet Kooperation unter Zentralbanken in Form von Swap-Linien, die zwischen den sechs wohl wichtigsten Zentralbanken (Anm.: der US-Notenbank, EZB, Bank of England, Schweizerische Nationalbank, Bank of Canada und der Bank of Japan.) eröffnet wurden: während der globalen Finanzkrise 2007/08. Diese Fazilität entwickelte sich schließlich zu einer ständigen internationalen Fazilität als Kreditgeber letzter Instanz, und fungiert als öffentliche Liquiditätssicherung für Eurodollarmärkte. Auf der Grundlage eines Interpretationsrahmens der politökonomischen Analyse stellen wir rationalistische Ansätze in Frage, indem wir zeigen, dass Zentralbanker:innen ihre Krisenerfindungen schließlich institutionalisieren. Wir beantworten die Frage, wie der öffentliche Backstop für den größten Finanzmarkt - den Eurodollarmarkt - im Jahr 2013 entstanden ist. Insgesamt unterstreichen die Ergebnisse meiner Dissertation die wichtige Rolle der Geldpolitik im Hinblick auf politisch relevante und umstrittene Dimensionen. Insbesondere analysiere ich die Ursachen und Folgen des internationalen Zentralbankwesens und trage zur öffentlichen Debatte um Zentralbanken bei. Meine Untersuchung zeigt, dass Geldpolitik reale Auswirkungen haben kann, und legt nahe, dass eine tiefere Integration des Euroraums und der internationalen Geldmärkte ratsam erscheint. / This thesis includes three chapters that inform the debate about central bank policies, especially with respect to trans-national dimensions. Thereby, the project aims at complementing the existing literature by fostering a better understanding of international monetary policy under the use of micro-economic data. The first chapter investigates how monetary policy conducted by the European Central Bank (ECB) affects the labor share at the firm-level, and suggests that the effectiveness of monetary policy may depend on the labor intensity of production. The results inform the policy debate on transmission and redistribution effects of monetary policy. The second chapter provides empirical evidence that euro-area wide monetary policy affects industrial competition in local markets. The findings suggest that tightening the policy stance is associated with a decline in competition (and vice versa), and this effect is sizeable and significant. This chapter highlights that low interest rates may support market competition and anti-monopolistic tendencies in an environment of bank-based lending. The third chapter sheds light on central bank cooperation in the shape of swap lines opened between the six major centrals banks (These are: The US Federal Reserve, ECB, Bank of England, Swiss National Bank, Bank of Canada, and the Bank of Japan.) during the Global Financial Crisis 2007/08. This facility ultimately developed into a permanent international lender of last resort facility, and acts a public liquidity backstop to Eurodollar markets. Building an interpretative framework of political economic analysis, we contrast rationalist approaches by showing that central bankers eventually institutionalize their crisis inventions. We answer the question of how the public backstop for the largest financial market - the eurodollar market - emerged in 2013. Taken together, the findings in my dissertation highlight the important role of monetary policy with respect to politically relevant and contested dimensions. In particular, I analyse the causes and consequences of international central banking and contribute to the public debate about central bank skepticism. My research shows that monetary policy can have real effects, and suggests that a deeper integration of the euro area and international money markets seem advisable.

Germany’s position of power within the European Union disguises how impacted the German economy was by the 2008 Financial Crisis and Europe’s subsequent Sovereign Debt Crisis. Two of Germany’s major banks-Commerzbank and Bayerische Landesbank- suffered major losses and required emergency liquidity assistance (ELA) to survive. Walter Bagehot wrote the theory underpinning lenders of last resort (LLRs) in 1873 but how has the development of systemically important banks affected the usefulness of Bagehot’s theory? This paper aims to explain why Germany is in need of updated LLR recommendations through an analysis of the ELA Germany at large, Commerzbank and Bayerische Landesbank received. It also aims to empirically prove the stigma and public distrust of ELA through a regression of Commerzbank’s daily stock returns using an augmented Fama/French model. I find that Bagehot’s theory and recommendations are out of date for our current global financial sector. I cannot empirically prove any stigma or public distrust of Commerzbank, there is no relationship between Commerzbank stock returns and the augmented Fama/French factors.

In this thesis, extensive research regarding the relationship between macroeconomic variables and the stock market is carried out. For this purpose the two largest stock markets in the world, namely the US and Japan, are chosen. As a proxy for the US stock market we use the S&P500 and for Japan the Nikkei225. Although there are many empirical investigations of the US stock market, Japan has lagged behind. Especially the severe boom and bust sequence in Japan is unique in the developed world in recent economic history and it is important to shed more light on the causes of this development. First, we investigate the long-run relationship between selected macroeconomic variables and the stock market in a cointegration framework. As expected, we can support existing findings in the US, whereas Japan does not follow the same relationships as the US. Further econometric analysis reveals a structural break in Japan in the early 1990s. Before that break, the long-run relationship is comparable to the US, whereas after the break this relationship breaks down. We believe that a liquidity trap in a deflationary environment might have caused the normal relationship to break down. Secondly, we increase the variable set and apply a non-linear estimation technique to investigate non-linear behaviour between macroeconomic variables and the stock market. We find the non-linear models to have better in and out of sample performance than the appropriate linear models. Thirdly, we test a particular non-linear model of noise traders that interact with arbitrage traders in the dividend yield for the US and Japanese stock market. A two-regime switching model is supported with an inner random or momentum regime and an outer mean reversion regime. Overall, we recommend investors and policymakers to be aware that a liquidity trap in a deflationary environment could also cause severe downturn in the US if appropriate measures are not implemented accordingly.

The focus of my research is dynamic political economy in macroeconomics. The first chapter of my dissertation studies the fact that Countries in the Organization of Economic Co-operation and Development (OECD) vary widely in their ratio of capital tax rates to labor tax rates. This chapter’s motivation is the strong negative correlation between the capital/labor tax ratio and old dependency ratio (defined as the ratio of population older than 65 years old to population between 20 and 65 years old) among 21 OECD countries. I study a parsimonious overlapping generations (OLG) majority voting model. In equilibrium, the retired households and relatively old working households hold a large amount of capital and vote for a low capital tax rate (implying a high labor tax rate), while relatively young working households hold a small amount of capital and vote for a high capital tax rate (implying a low labor tax rate). As a result, the model implies that countries with more old people have relatively lower capital taxes. The model takes the old dependency ratio as given and delivers a capital/labor tax ratio chosen by the median voter. The calibrated model presented here can generate not only this negative correlation, but also the tax ratios for the 21 OECD countries studied. In the second chapter, I extend the first chapter and study the Japanese economy and taxation for the past three decades. Population aging is a serious social issue in Japan. This chapter also shows that demographics is an important variable to explain the time series data of capital and labor tax rates. Interestingly, the model predicts that a benevolent or utilitarian government would set a capital tax rate to be zero as in many standard tax models. This result emphasizes the importance of modeling a political economy, as opposed to a standard social planning economy that has been extensively used previously. Finally, the third chapter focuses on US immigration policy. Illegal immigration from Mexico to the United States has been a hot topic to academic researchers and policy makers. This study quantitatively investigates the welfare effects of illegal immigration to native households in the US. More specifically, I simulate the model economy when the government deports every illegal immigrant. The simulation shows that the social welfare increases by 0.01 percent on average, and the poorest households’ welfare increases by 0.1%. Although, initially, there is a decrease in the interest rate and the unemployment rate as well as an increase in the wage, these variables in the no-illegal-immigrant steady state are almost identical to the initial steady state which is calibrated to the US economy. / text

Foreign aid donors increasingly demand that aid is used efficiently and effectively. This study examines the effect of corruption levels, measured by the Corruption Perceptions Index, within a recipient country on the levels of economic growth. A growing literature outlines the mechanisms through which corruption impedes economic growth and is summarized within. Additionally, as longevity gains may result from foreign aid but are not captured in economic growth, this study computes a variable called the Life Quality Indicator (LQI) that combines such gains with economic growth and examines corruption’s effect on LQI growth. As any windfall, foreign aid has been argued to exacerbate problems within corrupt countries—causing economic decline. This study develops an interaction of corruption levels and the ratio of aid receipts to GDP to examine the effects of this interaction on economic growth and LQI growth. Conducting a regression analysis shows the relationships between the interaction term and economic growth and the interaction term and LQI growth are negative, leading to policy recommendations that corrupt countries not receive foreign aid. Using game theory, this study predicts the outcomes of interactions between aid recipients and donors during the Cold War, post-Cold War, and in the present. The present predicted outcomes suggest that recipients will be the winners because they are able to choose between receiving aid from emerging donors and from the Development Assistant Committee (DAC). Policy guidance to the aid community includes understanding that emerging donors may exert influence on aid recipients and programs to monitor this influence ensuring that it does not become exploitation may be necessary. Finally, a case study of Russia is presented, highlighting its corruption and foreign aid receipts in the post-Soviet timeframe. A separate analysis is conducted on the Former Soviet Union (FSU) countries to determine whether Russia’s corruption and foreign aid receipts caused lower levels of economic and LQI growth than that experienced by other FSU countries. While results do not show this, the negative relationship between the interaction term and economic and LQI growth is also found in this subset.

Despite their natural resources, the countries of the Gulf Cooperation Council (Kuwait, the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, and Oman) have failed to live up to their economic potential, primarily due to their dependence on a revenue source with volatile prices and political significance in an unstable region. This thesis argues that the best way to convert oil wealth into consistent long term growth is through diversification, both by investing in foreign assets and by growing domestic sectors that are independent from oil and gas prices. The research further investigates the primary tool these countries have used to do so – sovereign wealth funds – and how their implementation and structures have impacted their effectiveness in achieving economic diversification and growth.

In this study, the possibility that money demand of one country might be affected by macroeconomic activities of other countries is investigated. We use the seemingly unrelated regression (SUR) technique, which takes into account all covariances between residuals of country-specific money demand equations. Efficiency of estimates using the SUR technique is enhanced because it uses information contained in the contemporaneous correlation of the error terms. The hypothesis of economic interdependence is tested. A proxy for foreign influence, deviation from interest rate parity (DIRP), is tested for significance in the money demand function.