Thesis (Ph. D.)--West Virginia University, 2003. / Title from document title page. Document formatted into pages; contains vi, 92 p. : ill. Includes abstract. Includes bibliographical references (p. 85-92).

This dissertation presents three chapters addressing issues pertaining to monetary policy, information, and central bank communication. The first chapter studies optimal monetary policy in an environment where policy actions provide a signal of economic fundamentals to imperfectly informed agents. I derive the optimal discretionary policy in closed form and show that, in contrast to the perfect information case, the signaling channel leads the policymaker to be tougher on inflation. The strength of the signaling effect of policy depends on relative uncertainty levels. As the signaling effect strengthens, the optimal policy under discretion approaches that under commitment to a forward-looking linear rule, thereby decreasing the stabilization bias. This contributes to the central bank finding it optimal to withhold its additional information from private agents. Under a general linear policy rule, inflation and output forecasts can respond positively to a positive interest rate surprise when the signaling channel is strong. This positive response is the opposite of what standard perfect information New Keynesian models predict and it matches empirical patterns found by previous studies. Chapter 2 provides new empirical evidence supporting the predictions of the model presented in Chapter 1. More specifically, I find that the responses of inflation forecasts to interest rate surprises is especially positive when there is greater uncertainty regarding the previous forecast. Finally, Chapter 3 examines whether communications by the Federal Open Market Committee might have the ability to influence financial market responses to macroeconomic news. In particular, I am able to relate labor-related word use in FOMC statements and meeting minutes to the amount by which interest rates' response to labor-related news exceeds their response to other news. / Economics

published_or_final_version / Economics and Finance / Master / Master of Philosophy

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A major contribution of research in workplace literacy has been to explore the part that writing plays in the knowledge-making practices of various professional groups. While such enquiry has revealed that writing is essential to the creation and use of specialized knowledge in the professions, it also points to the need to see writing as part of a larger network of symbolic activity. Researchers have shown that practitioners in certain professions---for example, engineering and architecture---do not produce knowledge solely through the social negotiations of language; rather, acts of writing and reading merge with other symbol-based practices in larger processes of knowledge-making. / A promising area for further research in this regard is the field of economics, where knowledge is constituted through a discourse combining language, mathematics, and visual forms such as graphs. The study reported here examines a particular site of such knowledge-making: the Ottawa head office of the Bank of Canada. Employing an ethnographic methodology that included interviews, informal conversations, on-site observations, reading protocols, tape-recorded meetings, and text analysis, the study examines an ongoing, writing-intensive activity known in the Bank as the "monetary policy process," in which the institution's economists generate knowledge about Present and probable future conditions in the Canadian economy and use this knowledge in formulating and implementing policy. / The central question guiding the study is this: what is the nature of the intellectual collaboration that enables the Bank's economists to transform large amounts of statistical data into focused written knowledge about the Canadian economy and then use this knowledge in making decisions about monetary policy? The study shows that the "monetary policy process" can be viewed as a communal activity in which the economists employ a set of written genres in combination with mathematical models---most importantly, the computer-run Quarterly Projection Model---to carry out their work. The joint, intermeshed use of writing and modelling gives rise to a distinctive pattern of social interaction and a style of collective thinking that allow the economists to produce specialized knowledge about the economy and apply this knowledge to decision-making.

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.

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