This dissertation studies topics in international macroeconomics. In the first chapter, I develop a heterogeneous agent model of a small open economy and studies how households differ in their responses to aggregate productivity and interest rate shocks. Poor households display stronger consumption responses to an aggregate productivity shock because they are more likely to be constrained in liquid assets. In contrast, rich households display stronger consumption responses to an interest rate shock because they are more likely to be unconstrained in liquid assets. When the economy experiences a sudden stop, defined as transitory contractionary shocks to productivity and the interest rate, the interest rate effect neutralizes the productivity effect. As a consequence, the sudden stop generates consumption-income elasticities that display little variation along the income distribution, similar to a permanent shock. My finding captures the observed behavior of households in the Mexican Peso Crisis of 1994. In the second chapter, I study a small open economy subject to a borrowing constraint which experiences stochastic volatility in its output endowment. I find that volatility shocks induce substantial changes in borrowing by households, in excess of the precautionary savings response. Household responses to volatility shocks increases the standard deviation of borrowing, but not the standard deviation of consumption, suggesting small welfare costs. Stochastic volatility increases the frequency of financial crises in a decentralized economy that overborrowsdue to a pecuniary externality, but not a socially optimal economy. In the third chapter, I introduce income heterogeneity into a small open economy model with an occasionally binding collateral constraint. Income heterogeneity generates poor households that borrow up to the constraint to smooth over their income shock. This differs from representative agent models that require a depressed aggregate state for the representative household to interact with the constraint. As a consequence, the model displays a higher average marginal propensity to consume which generates a higher volatility of aggregate consumption. The model with income heterogeneity fails to generate sudden stops. This occurs as the income shock generates rich households that are able to consumption smooth throughout contractions. In the fourth chapter, I trace the path between a benchmark representative agent model and a benchmark heterogeneous agent model. Heterogeneous agent models typically introduce idiosyncratic income risk, a financial friction in the form of a borrowing or non-negativity constraint, and recalibrate the impatience of households. This paper studies the effect of each term. With the minimal financial friction that households cannot starve, complete markets fail, but income risk has no significant effect on the aggregate response of consumption to an endowment or interest rate shock relative to a representative agent benchmark. Heterogeneity and significant financial frictions generate empirically realistic marginal propensities to consume, but fail to alter the aggregate consumption response. Decreasing the impatience of households is necessary to significantly alter aggregate responses to endowment and interest rate shocks.

Lam, Lai Fong. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2007. / Includes bibliographical references (p. 47-50). / Abstracts in English and Chinese. / ABSTRACT --- p.ii / ACKNOWLEDGEMENTS --- p.iv / LIST OF TABLES --- p.vi / LIST OF FIGURES --- p.vi / CHAPTER / Chapter I --- INTRODUCTION --- p.1 / Chapter II --- LITERATURE REVIEW --- p.6 / Chapter III --- THE EXCHANGE RATE REGIMES OF THE FOUR NIES --- p.10 / Review of the Exchange Rate Regimes of the Four NIEs / Frankel-Wei Regression / Chapter IV --- METHODOLOGY --- p.19 / Measurement of the Monetary Independence / Specification of Model / Chapter V --- EMPIRICAL RESULTS --- p.2? / Unit Root Test / The Endogeneity Test / Cointegration Test and Error Correction Model / Chapter VI --- CONCLUSIONS --- p.37 / APPENDICES --- p.41 / BIBLIOGRAPHY --- p.47 / TABLES --- p.51 / FIGURES --- p.59

Thesis (PhD)--Stellenbosch University, 2014. / ENGLISH ABSTRACT: In the first essay of this thesis, a medium scale DSGE model is developed and estimated for the South African economy. When used for forecasting, the model is found to outperform private sector economists when forecasting CPI inflation, GDP growth and the policy rate over certain horizons. In the second essay, the benchmark DSGE model is extended to include the yield on South African 10-year government bonds. The model is then used to decompose the 10-year yield spread into (1) the structural shocks that contributed to its evolution during the inflation targeting regime of the South African Reserve Bank, as well as (2) an expected yield and a term premium. In addition, it is found that changes in the South African term premium may predict future real economic activity. Finally, the need for DSGE models to take account of financial frictions became apparent during the recent global financial crisis. As a result, the final essay incorporates a stylised banking sector into the benchmark DSGE model described above. The optimal response of the South African Reserve Bank to financial shocks is then analysed within the context of this structural model.

The competitive outlook for the U.S. copper industry was seriously questioned in the mid-1980's in light of differential wages, reserve bases, environmental enforcement, and comparable rates of technical dissemination among country producers. These concerns coincided with the displacement of U.S. output by Chilean expansion and ascendancy of the latter to the number one ranking of world producers. Explanations for U.S. competitive decline ranged from the availability of international agency credit lines for competing state-run copper producers to labor-management relations in the U.S. This dissertation examines the timing of Chilean emergence and U.S. response in relation to flexible exchange rates and monetary policy regimes of the 1980's. Previous analyses of world and North American market structure and change focused on market imperfections on the supply side or supply and stock influences in major demand centers. Earlier speculations about Chilean expansion have proved correct, but U.S. capacity displacement appears to be limited. This dissertation examines the effectiveness of earlier models when updated to the 1980's, redefines structure to achieve better fits, and tests the new model with simulations of quantity and price. World monetary policy, debt, and developing country trade policies have changed dramatically since the late 1970's. These changes together with earlier nationalization initiatives have injected significant new questions of commodity price translation and traded versus nontraded goods substitution into analyses of market behavior. The analysis developed and described in this research shows that real exchange rates of specified copper-producing countries are a significant factor in output expansion and market share gains under conditions of stable labor agreements and monetary policy. These components serve to explain how producer share gains such as for Chile were achieved during cyclical low price periods and historically high refined consumer stock conditions. Additional explanatory power is given for U.S. import and export activity in refined copper. Qualifications are given for selected producing countries that are experiencing continued output decline in the wake of Chilean-U.S. competition. The simulation results show an improvement in forecasting ability over previous models for selected country mine production, including Chile, and import-export activity for the U.S. Comparable high quality results are generated for copper price using standard model configuration. Significant errors remain, as in the overestimation of U.S. mine production recovery due to the lack of better measures of production and investment cycles in the primary copper industry. Downsizing of new or rebuilt U.S. capacity through technical shift is also not captured.

Yau Cheuk Man. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1995. / Includes bibliographical references (leaves 46-47). / Lists of figure --- p.iii / Acknowledgment --- p.iv / Chapter / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Model1 --- p.6 / Chapter 2.1 --- The basic model --- p.7 / Chapter 2.2 --- The modified model --- p.11 / Chapter 2.3 --- Coordination policy --- p.19 / Chapter 2.4 --- Capital mobility --- p.21 / Chapter 3 --- Model2 --- p.23 / Chapter 3.1 --- The basic model --- p.24 / Chapter 3.2 --- The modified model --- p.28 / Chapter 3.3 --- Coordination policy --- p.35 / Chapter 3.4 --- Capital mobility --- p.37 / Chapter 4 --- Conclusion --- p.39 / REFERENCES --- p.46

An analytical method for predicting life-cycle maintainability labor costs is developed. The purpose of the analytical method is to allow the evaluation of products, based on life-cycle labor cost, early in the design process. The Boeing 737-300/400/500 Bleed Air Control System is used as a test model, and the results of the analysis are compared with historical data from this system. Four prospective design changes to the Bleed Air Control System are analyzed to demonstrate the ability of the analytical method to compare different designs or design changes. / Graduation date: 1997

This dissertation explores different aspects of the interaction between money and asset prices. The first chapter investigates how a firm’s financing affects its decision to update prices: does linking interest rates to inflation alter the firm’s optimal price updating strategy? Building on the state dependent pricing models of Willis (2000) and the price indexing literature of Azariadis and Cooper (1985) and Freeman and Tabellini (1998), this model investigates the financing and price updating decisions of a representative firm facing state-dependent pricing and a cash-in-advance constraint. The model shows the circumstances under which a firm’s financing decision affects its price updating decision, and how the likelihood of changing prices affects the amount borrowed. It also illustrates how the use of nominal (as opposed to inflation-linked) interest rates leads to a lower frequency of price updating and higher profits overall for a firm facing menu costs and sticky prices. The second chapter extends the bank run literature to present a theoretical mechanism that explains how money supply can affect asset prices and asset price volatility. In a two period asset allocation model, agents faced with uncertainty cannot perfectly allocate assets ex-ante. After income shocks are revealed, they will be willing to pay a premium over the future fundamental value for an asset in order to consume in the current period. The size of this premium is directly affected by the supply of money relative to the asset. This paper explores the relationship between economy-wide monetary liquidity on the mean and variance of equity returns and in relation to market liquidity. At an index level, I test the impact of money-based liquidity measures against existing measures of market liquidity. I proceed to do a stock level analysis of liquidity following Pastor and Stambaugh (2003). The results indicated that measures of aggregate money supply are able to match several of the observed relationships in stock return data much better than market liquidity. At an individual stock level, monetary liquidity is a priced factor for individual stocks. Taken together, these papers support the idea that changes in the money supply have consequences for the real economy. / text

Milton Friedman’s article on the optimum quantity of money has motivated much research since its publication. While most of the research has been on deterministic frameworks, a few models (e.g. Bewley 1983, Taub 1989) have extended the analysis to stochastic environments. The first two essays of the dissertation address the issue in two types of stochastic economies. In both the models, quadratic utility and linear constraints have been used to facilitate the use of Whiteman’s techniques (1985). The third essay introduces capital and derives the optimal rate of monetary policy in the presence of financial intermediaries. In the first essay a pure exchange model in which infinitely lived agents face stochastically varying endowments in each period is considered. In this model individuals can delay payment for purchases into the future with a credit card. It shows that the optimal rate of inflation is the same in a world where individuals are required to pay for their purchases immediately as in a world where they can delay payment with a credit card. Moreover, the optimal inflation rate may be positive or negative depending on the parameters of the model. Therefore, Bewley’s (1983) conjecture that deflation should proceed at a rate greater than the rate of time preference in a world of uncertainty is not generally true. The second essay derives the optimum quantity of money in a stochastic production economy. The optimum quantity of money literature largely ignores the effect of labor supply on money’s optimal rate of return. This paper examines the issue in an economy that is subject to stochastic shocks each period. It shows that incorporating production affects the optimal return on money in important ways. If there are individual specific shocks to preferences, then the optimal policy is highly inflationary. When individual preferences are subject to economy wide shocks, however, it is possible for either inflation or deflation to be optimal. The optimal policy depends on the weight individuals attach to the disutility of work and the weight individuals attach to the utility from holding money. Optimal policy responds positively to increases in the disutility from work and negatively to increases in the weight on consumption in the utility function. The paper therefore shows the sensitivity of the optimal policy on the way labor supply is modeled. Since such considerations do not arise in endowment economies, the optimal policy will generally change as one moves from endowment to production economies. In the third essay the Tobin effect and optimal monetary policy are analyzed when financial intermediaries develop endogenously. Providing a justification for the development of intermediaries similar to those found in the recent financial intermediation literature, we show that financial intermediation significantly affects investment decisions and monetary policy. In particular, the cost to intermediaries of providing substitutes of outside money play a critical role. Whether a decrease in the return on outside money will increase investment or not is found to depend on how the cost of providing alternative means of payment is affected. It is found that at low and moderate rates of inflation the Tobin effect remains valid. At high rates of inflation, however, the Tobin effect gets reversed. Further, since borrowers have private information regarding the outcome of the investment projects financed by the lenders, credit rationing may occur in equilibrium. We also derive the rate of return on money that maximizes social welfare. This optimal rate of return is not only dependent on the cost of the alternative means of payment, it also depends critically on whether credit is rationed in equilibrium or not. Finally, the paper highlights some of the distributional issues raised by a change in the rate of return on money. / Ph. D.

The rst chapter co-authored with Tatiana Damjanovic studies optimal mon- etary policy in a New Keynesian model at the zero bound interest rate where households use cash alongside house equity borrowing to conduct transactions. The amount of borrowing is limited by a collateral constraint. When either the loan to value ratio declines or house prices fall, we observe a decrease in the money multiplier. We argue that the central bank should respond to the fall in the money multiplier and therefore to the reduction in house prices or the loan to collateral value ratio. We also nd that optimal monetary policy generates a large and per- sistent fall in the money multiplier in response to the drop in the loan to collateral value ratio. The second chapter is focused on a macroeconomic model with sticky prices, rms borrowing market and the labour market frictions. We study connection be- tween monetary policy and labour market under the negative nancial and the positive productivity shocks. We have found that the interest rate rule with in a- tion and labour market targeting performs better than the rules with the aggregate consumption and debt targeting and is closest to the optimal policy as compared to the other regimes in terms of the welfare measure. We demonstrate too that the sign of the coe¢ cient next to unemployment in the policy rule depends on the value of workers bargaining power. The third chapter co-authored with Tatiana Damjanovic and Keqing Liu uses the classical cobweb model framework to investigate properties of the transition matrix in the bounded memory econometric OLS-type learning. We de ne memory length as the number of past observations used to form a forecast and analytically prove that for any length, the eigenvalues of the transition matrix lie within the unit circle. In addition, we sketch the proof of stationarity of the cobweb model under bounded memory learning. Furthermore, we investigate the relationship between the volatility of forecasts and the length of memory and nd that shorter memory causes higher variance in both forecasts and estimates of the OLS parameters.

published_or_final_version / Real Estate and Construction / Doctoral / Doctor of Philosophy