This thesis examines two closely related issues: (1) the ability of imperfect information models to explain some aspects of business cycle dynamics, and (2) the interaction between central bank communications and monetary policy. These issues are related because central bank communications can only be studied in models with imperfect information. In chapter 1, I investigate the ability of a noisy rational expectations model to generate plausible macroeconomic dynamics. The model allows for imperfect, heterogeneous information, and signal extraction from endogenous variables. I find that imperfect information significantly improves the model's ability to generate persistent, hump-shaped responses to a transitory monetary policy shock. This is achieved without the need for mechanical frictions. In addition, the model generates realistic inflation forecast errors. Chapter 2 explores the relationship between central bank statements about future policy and the degree of commitment. I allow the central bank to make (possibly vague) statements about its expected future policy. I begin by assuming that the central bank adopts a loss function which internalizes the bygone costs of deviating from such a pre-announced policy action. The resulting policy is a convex combination of pure discretion and full commitment. As the precision of central bank statements increases, this policy converges to the full commitment policy. I then show that this type of commitment to internalize bygone costs is sustainable only for moderate degrees of precision. Chapter 3 studies the impact of central bank communications about the state of the economy. In particular, I examine the extent to which increased central bank transparency creates a meaningful trade-off between beneficially conveying fundamental information and adversely contaminating observed data with the central bank's opinion. This question is addressed in a variant of the model from chapter 1. In this environment, both the central bank and private agents learn about the state of the economy from observations of endogenous variables. By making the central bank learn from endogenous variables, I am able to study the impact of communications precision on the bank's signal extraction problem.

This dissertation addresses three issues in international macroeconomics. The first chapter examines optimal portfolio decisions in a monetary open economy DSGE model. In a complete market environment, Engel and Matsumoto (2005) find that sticky price can generate equity home bias. However, their result is sensitive to the structure of the financial market. In an incomplete market environment, we find “super home bias” in the equilibrium equity portfolio, which casts doubt on the ability of sticky price in describing the observed equity portfolios. We further show that introducing sticky wages helps to match the data. The second chapter analyzes the welfare impact of financial integration in a standard monetary open-economy model. Financial integration may have negative effects on welfare if integration occurs in the presence of nominal price rigidities and constraints on the efficient use of monetary policy. The reason is that financial integration leads to excessive terms of trade volatilities. From a policy perspective, the model implies that developing economies that are experiencing financial integration may attempt to alleviate the welfare cost of integration by stabilizing the exchange rate. This prediction is consistent with the widespread reluctance to following freely floating exchange rates among these economies. On the other hand, for advanced economies that have the ability to operate efficient inflation targeting monetary policies, financial integration is always beneficial. Thus, the model accounts for the observed acceleration in cross-border asset trade among advanced economies in the early 1990s as it was mainly the industrial countries that switched to an inflation targeting regime at the time. The third chapter uses an open-economy neoclassical growth model to explain the saving and investment behavior of the U.S. and a group of other OECD countries. We find that while the model explains investment quite well, it tends to overpredict U.S saving and underpredict saving in the rest of the world. We show that the closed-economy version of the model also predicts saving accurately but that is only because it imposes equality between saving and investment. In effect, the model explains investment not saving behavior.

It is well known that cross-country diferences in income per worker are very large. For example, the average per-capita income of the richest ten percent of countries of the Penn World Tables in 1996 is about thirty times that of the poorest ten percent. Development accounting uses cross-country data on output and inputs to measure the relative contribution of diferences in factor quantities, and di?erences in Total Factor Productivity (TFP) or the efciency with which those factors are used, in explaining these vast diferences in income per worker. The consensus view in development accounting is that TFP is the most important factor in accounting for diferences in income per worker across countries (See, for example, Klenow and Rodriguez-Clare (1997), Prescott (1998), Hall and Jones (1999), Ferreira, Issler and de Abreu Pessa (2000), and Caselli (2004).) This suggests that in order to explain cross-country diferences in income per worker we need to understand why TFP difers across countries. An emergent literature addresses this issue and shows that cross-country di?erences in the institutional environment, in policies, or in human capital can cause large diferences in TFP. In particular, Acemoglu and Zilibotti (2001) emphasize the role of skill-mismatch. They argue that even if all countries have equal access to new technologies, the existence of technology-skill mismatch can lead to sizeable diferences in TFP and output per worker; Parente and Prescott (2000) and Herrendorf and Teixeira (2004) build the ories in which the protection of monopoly rights impedes the adoption of superior technologies; Rogerson and Restuccia (2004) argue that diferences in the allocation of resources across heterogeneous plants may be a signi?cant factor in accounting for cross-country di?erences in output per capita; Erosa and Hidalgo (2005) propose a theory in which capital market imperfections are at the origin of cross-country TFP differences; and Kocherlakota (2001) shows that limited enforcement and high inequality are crucial to understand the existence of institutions leading to the ine?cient use of technologies.

Traditional literature on energy economics gives a central role to exogenous political events (supply shocks) or to global economic growth (aggregate demand shock) in modeling the oil market. However, more recent literature claims that the increased precautionary demand for oil triggered by increased uncertainty about a future oil supply shortfall is also driving the price of oil. Based on this motivation, in the first chapter, we propose to build a DSGE model to explore macroeconomic consequences of precautionary demand motives in the crude oil market. The intuition behind the precautionary demand is that since firms, using oil as an input in their production process, are concerned about the future oil prices, it is reasonable to think that in the case of uncertainty about future oil supply (such as a highly expected war in the Middle East), they will buy futures and/or forward contracts to guarantee a future price and quantity. We simulate the effects of demand shocks in the oil market on macroeconomic variables, such as GDP and inflation. We find that under baseline Taylor-type interest rate rule, real oil price, inflation and output loss overshoot and go down below steady state at the next period if uncertainties are not realized. However, if the shock is realized, i.e. followed by an actual supply shock, the effect on inflation and output loss is high and persistent. Second chapter analyzes the effect of storage market on the monetary policy formulation as a response to an oil price shock. Some recent literature suggests that although high oil prices contributed to recessions, they have never had a pivotal role in the creation of those economic downturns. A general consensus is that the decline in output and employment was due to the rise in interest rates, resulting from the Fed’s endogenous response to the higher inflation induced by oil price shocks. However, traditional literature assumes that oil price shocks are exogenous to the U.S economy and they ignore the storage market for the crude oil. In this regard, a model with an endogenous (demand shock) or exogenous (supply shock) price shock may produce a totally different monetary policy proposal when there exists a market for storage for the crude oil. The rationale behind this idea is that when goods’ prices are sticky in the economy, the monetary authority can effect the level of inventories through the changes in the real interest rates. Thus, lower interest rate rules, as proposed in the literature, will cause additional oil supply scarcity in the spot market. Therefore, an optimal monetary policy that maximizes the welfare in the economy should consider the adverse affect of low interest rates on the crude oil market.

This dissertation consists of two essays in international macroeconomics. The first essay shows that optimal fiscal and monetary policy is time consistent in a standard small open economy. Further, there exist many maturity structures of public debt capable of rendering the optimal policy time consistent. This result is in sharp contrast with that obtained in the context of closed-economy models. In the closed economy, the time consistency of optimal monetary and fiscal policy imposes severe restrictions on public debt in the form of a unique term structure of public debt that governments can leave to their successors at each point in time. The time consistent result is robust: optimal policy is time consistent when both real and nominal bonds have finite horizons. While in a closed economy, governments must have both nominal and real bonds, and have at least real bonds over an infinite horizon to render optimal policy time consistent. The second essay uses a dynamic stochastic general equilibrium model to theoretically rationalize the empirical finding that sudden stops have weaker effects on outputs when the small open economy is more open to trade. First, welfare costs of sudden stops are decreasing in trade openness. The reason is that when the economy is more open to trade, the economy will have less volatile capital, which leads to less volatile output. In terms of welfare, when the small open economy is more open to trade, the welfare costs of sudden stops will be smaller. Second, sudden stops may be welfare improving to the small open economy. This is because when the representative household is a net borrower in the international capital market, its consumption will be negatively correlated with country spread. Since utility is a concave function of consumption, it must be a convex function of country spread. That is, when the country spread is more volatile, the mean utility is higher. The two findings are robust: they hold with one sector economy model, and two sector economy models with homogenous capital and heterogenous capital. In addition, this paper shows that a counter-cyclical tariff rate policy is not welfare-improving. / Dissertation

abtract This paper uses a seasonal dependence VAR model that is proposed by Olivei and Tenreyro in the year 2007.We are to assess whether the effect of a policy exogenous shock differs according to the quarter in which the shock occur. We consider Taiwan as a small open economy with flourishing international trade; the effect of exchange rate is viewed as an important transmission channel in monetary transmission mechanism. First part, we consider domestic monetary policy shock how to influence macroeconomic variables. Second part, the United State is powerful around the world. The Fed policies whether affect Taiwan macroeconomic or not. Finally, discuss an exogenous shock on the exchange rate to impact Taiwan macroeconomic.

This paper applies a Factor-Augmented VAR model proposed by Bernanke, Boivin and Eliasz (2005) to measure the impact of the monetary policy in Taiwan. Our empirical results show that, first, the more the factors added in the benchmark VAR, the more we can explain the price puzzle problem. Second, the effect of the tightening in the monetary policy (the increase in the interbank overnight lending rate) is inconsistent with the results expected by the credit channel.

Recent studies show that investing in higher American Customer Satisfaction Index (ACSI) score firms perform significantly positive abnormal returns over time. Moreover, prior researches indicate that government intervenes such as monetary policy and market condition influence stock returns significantly. However, no previous studies examine the performance of firms with high customer satisfaction during different monetary stance and different market states. This paper investigates relation between stock market valuation of customer satisfaction and changes in monetary policy and further examines that relation under different market states. This paper finds that forming portfolio on the basis of satisfaction data has the potential to generate valuable excess returns. Furthermore, the evidence of this study shows higher ACSI portfolio performs significantly positive return under all monetary stance and market state over time. Especially, in bad macroeconomic conditions, higher ACSI portfolio consistently generates abnormal return in restrictive monetary stances and bear markets, showing that higher ACSI portfolios can persistent beat the market under different monetary policy and market conditions. The evidence of this study concludes that customer-based metrics are valuable information when forming portfolios.

The dissertation consists of three essays. Chapter II examines the asymmetric effects of monetary policy on stock prices by using an unobserved components model with Markov-switching. My results show that monetary policy has negative effects on stock prices, which is consistent with the most recent literature. When the transitory component is in the low volatility state, a contractionary monetary policy significantly reduces stock prices. When the transitory component is in the high volatility state, the negative effect of monetary policy becomes larger, but the difference of the monetary policy effects between two states is not significant. Besides, a contractionary monetary policy will lower the probability of stock prices staying in the low volatility state. Monetary policy also reduces the total volatility of stock prices and the volatility of the transitory component of stock prices. Chapter III employs the smooth transition autoregressive (STAR) models to investigate the nonlinear effect of monetary policy on stock returns. The change in the Federal funds rate is used as an endogenous measure of monetary policy and the growth rate of industrial production is also considered in the model. My empirical results show that excess stock returns, the change in the Federal funds rate, and the growth rate of industrial production all can be expressed in the nonlinear STAR models. The estimated coefficients and the impulse response functions show that the effect of monetary policy on excess returns of stock prices is significantly negative and nonlinear. The change in the Federal funds rate has a larger negative effect on excess returns in the extreme low excess returns regime and the effect becomes smaller when the excess returns are greater than the threshold value. In chapter IV, I use a panel data approach to investigate the impact of exchange rate volatility on bilateral exports of the U.S. to the thirteen major trading partners. I further test the possibility of nonlinear effects of exchange rate volatility on exports by using threshold regression methods for non-dynamic panels with individual-specific fixed effects proposed by Hansen (1999). The results indicate that the effect of exchange rate volatility on bilateral exports is nonlinear. When the relative real GDP per capita of the exporting partner is lower than the threshold value, the response of bilateral U.S. exports to exchange rate volatility is positive. But, exchange rate volatility decreases bilateral exports of the U.S. to the exporting partners when their relative real GDP per capita surpass the threshold value.

Monetary policy has been given either too many positive attributes or, in contrast, only economy-disturbing features. Central banks must take into account a wide variety of factors to achieve a proper characterization of modern economies for the optimal implementation of monetary policy. Such is the case of central bank accountability and monetary policy effectiveness. The objective of this dissertation is to examine these two concerns relevant to the current macroeconomic debate. The analyses are carried out using an innovative set of tools to extract presumably important information from historical data of selected macroeconomic indicators. This dissertation consists of three essays. The first essay explores the causality between the elements of the "celebrated" Taylor rule, using a Structural Vector Autoregression approach on US data. Directed acyclical graph techniques and Bayesian search models are used to identify the contemporaneous causal structure in the construction of impulse-response functions. Further analysis is performed by evaluating the implications of performing standard innovation-accounting procedures, derived from a Structural Vector Autoregression on interest rates, inflation, and unemployment. This is examined whenever a causal structure is imposed vs. when it is observed. We find that the interest rate causes inflation and unemployment. This suggests that the Fed has not followed a Taylor rule in any of the two periods under study. This result differs significantly to the case when the causal structure is imposed. The second essay presents an incentive-compatible approach based on proper scoring rules to evaluate density forecasts in order to reduce the central banks' accountability problem. Our results indicate that the surveyed forecasters have done a "better" job than the Monetary Policy Committee (MPC). The third essay analyzes the causal structure of the factors that are presumed to influence the effectiveness of monetary policy, represented by the sacrifice ratio. Directed acyclical graph methods are used to identify the causal flow between such determinants and the sacrifice ratio. We find evidence that, while wage rigidities and central bank independence are the two major determinants of the sacrifice ratio, the degree of openness has no direct effect on the sacrifice ratio.