The main focus of examination of this thesis can be broadly defined as the analysis of the main determinants of economic activity in Mexico. In this analysis, it is found that real and nominal exchange rates have enormous importance in the determination of economic activity in Mexico compared to other candidates. This conclusion is reached through a series of quantitative examinations of Mexican times series of aggregated macro economic variables. First, the determination of long-run real exchange rate is analyzed. Then, an inverse relationship between real exchange rate (defined as Pesos/Dollars) and real output and consumption has been established both empirically and theoretically, using explicit long-run models. Variance decomposition and impulse response analyses, carried out with the help of vector error correction models embedding long-run relations, have revealed the fact that the most important source of fluctuations either in consumption or output is the real exchange rate. The other variables considered in the analysis, such as supply, demand, or monetary shocks have been found to have less or non-robust importance. Next, the thesis examines the business cycle associated with exchange rate based programmes for the case of Mexico. The impulse responses, provided for this analysis, partly confirmed initial-boom-Iater-recession hypothesis observed in exchange-rate-basedstabilization programmes. The variance decomposition analysis, on the other hand, indicates that, the movements either in consumption or output can be largely explained by nominal exchange rate shocks rather than monetary shocks. Finally, given the importance of exchange rate variables, the thesis returns to the question of their determinants. Based on the quantitative analysis performed, the thesis concludes that real exchange rates can be solely explained by real shocks and nominal exchange rates can largely be explained by real shocks. Hence, it is the real exchange rate models that explain real exchange rate movements via the predominance of real shocks that get credit.

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The nature of the Thai banking system in the pre-crisis era has been of great interest in the aftermath of Thailand’s 1997 financial crisis. Scores of studies have put great emphasis on the factors contributing to the crisis. There has been scant prior research on how Thai banks operate in practice since the crisis and the researcher was interested in better understanding this, particularly how the banks deal with information-related problems. The main objective of the research is to give an insight into the actions that Thai bankers carry out and how their activities are perceived by corporate borrowers, auditors, regulators and the bankers themselves. In dealing with informational problems, Thai banks employ screening techniques, collateral requirements, loan covenants, monitoring, and their relationships with borrowers in an attempt to mitigate the costs of both adverse selection and moral hazard problems. The study finds that there have been significant improvements in the banking system which has made Thai banks more compliant with internationally accepted lending practice. However, there is still room for further studies on how to create incentives to improve financial disclosure among small and medium enterprises (SMEs), how to establish sound corporate governance of banks, and how to minimise political interference in Thai state-owned banks.

Environmentally Sensitive Areas constitute the principal policy instrument for rewarding farmers as providers of environmental goods and services in the EU. This study examines two Scottish ESAs and considers whether the environmental benefits resulting exceed the costs and whether money is being targeted in a way which maximises the benefits. The study examines two main aspects of the public's perceptions of the benefits of the ESA policy: • the public's preferences for different landscape and conservation features within the ESA, and • the public's monetary valuation of the benefits of the scheme (using the Contingent Valuation Method). The individual features which are eligible for grant support under the ESA scheme are generally in accord with public preferences. It is clear from this study that, in principle, a high level of support for the ESA scheme exists amongst members of the public in the Loch Lomond and Stewartry areas. However, in practice, the way that the scheme has operated in the past has focused on an unduly narrow range of environmental services. Furthermore, those features commanding the greatest input of expenditure generate low levels of benefit to the public. If the primary aim were to maximise the monetary value of environmental gains resulting from a given level of expenditure, then an adjustment in the allocation of funding between different policy elements would seem to offer considerable potential for increasing the resulting consumer benefits. Furthermore, the current levels of expenditure on the policy are well below the mean willingness to pay for the policy stated by residents and visitors in the study sites.

Inflation targeting has become an increasingly popular regime among emerging markets. Focusing on the experience of inflation targeting adoption in the countries in Central and Eastern Europe and Commonwealth of Independent States, this thesis highlights the main features of the inflation targeting framework. A clear economic condition bringing these countries together is considered the dollarization issue which gains importance when designing the inflation targeting framework. The empirical study on the impact of inflation targeting in inflation, inflation volatility, output, output volatility and deposit dollarization shows clear benefits of inflation targeting in terms of inflation and inflation volatility, which are not achieved at the expense of output growth. Also, dollarization does not harm the positive impact of inflation targeting on inflation.

Author: Nadzeya Laurentsyeva Title: Monetary Union of Belarus and Russia - Analysis of Possible Costs for the Belarusian Economy Abstract The thesis analyses alignment of the Belarusian and Russian economies with the aim to infer on costs of the possible monetary union for Belarus. Having estimated a structural vector autoregression model with long-run restrictions, we conclude that the economies have shared common supply and external demand shocks, but other temporary fluctuations have been, in large, asymmetric. Structural discrepancies (as proven by the qualitative analysis) and differences in the monetary policy foci and transmission (as illustrated by the estimation results of Taylor rules and a monetary vector autoregression model) could account for increasing misalignment since 2010. In terms of the welfare costs for Belarus (evaluated with a New Keynesian dynamic stochastic general equilibrium model), the monetary union can be considered preferable to the current monetary policy of the National bank of the Republic of Belarus, while being inferior to the hypothetical inflation targeting regime. The welfare gap between the two arrangements reduces, if stronger domestic price flexibility and higher synchronization of productivity shocks can be assumed.

This dissertation applies vector autoregression approaches to assess the effects of the monetary policy in South Africa. First, the dissertation quantified declines in the consumption expenditure attributed to the combined house wealth and credit effects due to the contractionary monetary policy shocks. The results at the peak of interest rates effects on consumption on the sixth quarter provide little support that the indirect house wealth channel is the dominant source of monetary policy transmission to consumption. Second, the dissertation assessed how real interest rate reacts to positive inflation rate shocks, exchange rate depreciation shocks and the existence of Fisher effect over longer periods. Evidence confirmed the Fisher effect holds over longer horizons and the real interest rate reacts negatively to the inflation and exchange rate shocks. In addition, findings show that the strict inflation-targeting approach is not compatible with significant real output growth. The results show that only the real effective exchange rate is growth enhancing under flexible inflation targeting approach. Third, the dissertation investigated and compared the effects of contractionary monetary policy and exchangerate appreciation shocks on trade balance in South Africa. Evidence suggests that the exchange rate appreciation shocks worsen the trade balance for longer periods than contractionary monetary policy shocks in South Africa. In addition, the findings indicate that monetary policy operates through the expenditure switching channel rather than the income channel in the short run to lower net trade balance. Finally, the dissertation investigated the effect of contractionary monetary policy shocks on output in South Africa and Korea. The chapter compared what the estimated structural shocks suggested about policy shocks relative to bank systematic responses. Evidence shows that a contractionary monetary policy shock reduces output persistently in South Africa compared to transitory declines in Korea. The estimated monetary policy shocks suggest that Korean monetary policy was expansionary during the recession in 2009 unlike the South Africa counterparty. I attribute the differences to monetary policy intervention tools such as swap arrangement, in addition to interest rate reductions used to deal with recession in Korea.

Thesis advisor: Susanto Basu / Thesis advisor: Ryan Chahrour / This dissertation consists of three independent chapters analyzing the sources of business cycles and the role of monetary policy. Taking both closed- and open-economy perspectives, I study the importance of expectations for the empirical identification of economic and policy shocks, the nature of business cycle fluctuations, and the optimal conduct of monetary policy. The first chapter is titled ``International Spillovers and the Exchange Rate Channel of Monetary Policy,'' and is joint work with Vito Cormun. Motivated by the observation that exchange rate fluctuations largely influence small open economies, we propose a novel approach to separately identify the effects of domestic and external shocks on exchange rates and other macroeconomic variables, thereby uncovering a set of new empirical findings. A first finding is that external shocks account for most of exchange rate fluctuations. Relatedly, the bulk of external shocks is strongly correlated with measures of global risk aversion and uncertainty (e.g. the VIX), and a country’s net foreign asset position largely explains the exposure of its exchange rate to external disturbances. A second finding is that domestic and external disturbances generate very different comovement patterns between interest rates and exchange rates. In particular, unlike domestic shocks, external shocks are associated with large and significant deviations from uncovered interest parity. As a result, an econometrician that fails to properly distinguish between sources of exchange rate fluctuations is bound to obtain puzzling estimates of the exchange rate effects of domestic monetary policy shocks. These empirical findings have profound implications for models of small open economy and exchange rate determination. In particular, they favor theories in which exchange rates are jointly determined by the risk-bearing capacity in financial markets as well as the extent of a country’s financial imbalances. For this reason, we develop a model of the international financial sector that satisfies these features, and embed it in an otherwise standard general equilibrium two-country small open economy model. The key mechanism of the model consists of risk averse traders in the foreign exchange markets that require a premium to hold the currency risk of the small open economy. We show that the proposed model is able to reproduce all the empirical findings documented in the empirical analysis, including the cross-country differences in exposure to external shocks, the role of a country’s net foreign asset position, the different responses of interest rates, exchange rates, and currency excess returns across different shocks, as well as the emergence and resolution of the so-called exchange rate response puzzle across different identification approaches. The second chapter is titled ``Should Central Banks Target Investment Prices?'' and is joint work with Susanto Basu. The question posed in the title is motivated by the observation that central banks nearly always state explicit or implicit inflation targets in terms of consumer price inflation. To address the question, we develop an otherwise standard dynamic general equilibrium model with two production sectors. One sector produces consumption goods, while the other produces investment goods. In this context, we show that if there are nominal rigidities in the pricing of both consumption and investment goods and if the shocks to the two sectors are not identical, then monetary policy faces a tradeoff between targeting consumption price inflation and investment price inflation. In a model calibrated to replicate the estimated processes of sectoral total factor productivities as well as a set of unconditional business cycle moments, ignoring investment prices typically leads to substantial welfare losses because the intertemporal elasticity of substitution in investment is much higher than in consumption. Based on the model's predictions, we argue that a shift in monetary policy to targeting a weighted average of consumer and investment price inflation may produce significant welfare gains, although this would constitute a major change in current central banking practice. The third chapter is titled ``Information Acquisition and Self-Fulfilling Business Cycles,'' and is sole-authored work. To study the implications of imperfect information on economic fluctuations, I develop an otherwise standard Real Business Cycle model with endogenous information acquisition, which generates countecyclical firm-level uncertainty and endogenously procyclical productivity, as empirically documented in the literature. The main contribution of this chapter is the observation that this model displays aggregate increasing returns to scale and, potentially, an indeterminate dynamic equilibrium. In fact, an aggregate representation of the model is observationally equivalent to earlier theories of endogenous fluctuations based on increasing returns to scale, but its microeconomic foundations are consistent with empirically observed firm-level returns to scale. In a model calibrated to replicate a set of moments of the empirical distribution of firm-level productivity, self-fulfilling fluctuations are possible. In addition, a Bayesian estimation of the model suggests that non-fundamental shocks explain a significant fraction of aggregate fluctuations. / Thesis (PhD) — Boston College, 2019. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.