This thesis investigates novel and unique avenues of corruption in an attempt to reach a better understanding of the causes of corruption. In particular, the thesis theoretically and empirically examines the implication of the military in politics in breeding corruption and the importance of financial development in reducing corruption. The thesis also improves our understanding of cross-country variations in inequality and economic growth by providing a deeper analysis of growth-inequality relationship with a particular focus on the role of globalisation and domestic policy reforms. To achieve this aim, the thesis contains four core chapters (essays) in addition to an introductory chapter, literature review chapter and a concluding chapter. The four core chapters can be viewed different from one another. The first two core chapters address the causes of corruption. In particular, the first of these two chapters assess the role of military in politics in determining corruption levels, and investigate how important financial development is for corruption. The other two core chapters provide deeper understanding of cross-country variations in inequality, poverty and economic growth. Recent theoretical developments and case study evidence suggests a relationship between the military in politics and corruption. In the third chapter, this study contributes to this literature by analyzing theoretically and empirically the role of the military in politics and corruption for the first time. By drawing on a cross sectional and panel data set covering a large number of countries, over the period 1984-2007, and using a variety of econometric methods substantial empirical support is found for a positive relationship between the military in politics and corruption. In sum, our results reveal that a one standard deviation increase in the military in politics leads to a 0.22 unit increase in corruption index. This relationship is shown to be robust to a variety of specification changes, different econometric techniques, different sample sizes, alternative corruption indices and the exclusion of outliers. This study suggests that the explanatory power of the military in politics is at least as important as the conventionally accepted causes of corruption, such as economic development. The importance of financial market reforms in combating corruption has been highlighted in the theoretical literature but has not been systemically tested empirically. In the fourth chapter, we provide a first pass at testing this relationship using both linear and non-monotonic forms of the relationship between corruption and financial intermediation. Our study finds a negative and statistically significant impact of financial intermediation on corruption. Specifically, the results imply that a one standard deviation increase in financial intermediation is associated with a decrease in corruption of 0.20 points, or 16 percent of the standard deviation in the corruption index and this relationship is shown to be robust to a variety of specification changes, including: (i) different sets of control variables; (ii) different econometrics techniques; (iii) different sample sizes; (iv) alternative corruption indices; (v) removal of outliers; (vi) different sets of panels; and (vii) allowing for cross country interdependence, contagion effects, of corruption. In the fifth chapter, we examine the impact of globalisation on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. The role of globalisation in increasing inequality in economies with financial markets imperfections has been highlighted in the theoretical literature but has not been systemically tested empirically. We provide a first pass at testing this relationship between globalisation and inequality in the presence of underdeveloped financial markets. Our study finds a negative and statistically significant impact of globalisation on poverty in economies where financial systems are relatively developed, however, inequality-reducing effect of globalisation in these economies is limited. The other major findings of the study are five fold. First, a non-monotonic relationship between income distribution and the level of economic development holds in all samples of countries. Second, both openness to trade and FDI do not have a favourable effect on income distribution in all selected developing countries. Third, high financial liberalization exerts a negative and significant influence on income distribution in developing countries. Fourth, inflation seems to distort income distribution in all sets of countries. Finally, the government emerges as a major player in impacting income distribution in developing countries. In the last core chapter, we analytically explore and empirically test the relationships between economic growth, inequality and trade. This study contributes in the existing literature by answering the question why growth effects of income inequality and trade are not definitely positive or negative. This study determines the positive effects of inequality and trade on growth both in the short run and long run. However, the growth effect of inequality is substantially influenced by the domestic context in terms of the prevalence of credit market imperfections. The study identifies credit market imperfections in low-income developing countries as the likely reason for a positive relationship between inequality and economic growth. Similarly, growth effect of trade is found to be negative in economies where inequalities are comparatively high. The results show that inequality does matter for economic growth, but in different ways for different regions at different levels of economic development. The inequality-growth nexus is significantly negative for the low-income group but strongly significantly positive for the high-income one. The findings of the study are robust to alternative econometric techniques, specifications, control of nonlinearity, inclusion of additional control variables, exclusion of outliers and sub-samples.

In this thesis, we study the causal relationship between functional distribution of income and economic growth. In particular, we focus on some of the aspects that might alter the effect of the profit share on growth. After a brief introduction and literature review, the empirical contributions will be presented in Chapters 3,4 and 5. Chapter 3 analyses the effect of a contemporaneous decrease in the wage share among countries that are major trade partners. Falling wage share and wage moderation are a global phenomenon which are hardly opposed by governments. This is because lower wages are associated with lower export prices and, therefore, have a positive effect on net-exports. There is, however, a fallacy of composition problem: not all countries can improve their balance of payments contemporaneously. Studying the country members of the North America Free Trade Agreement, we find that the effect on export of a contemporaneous decrease in the wage share in Mexico, Canada and the United States, is negative in all countries. In other words, the competitive advantage that each country gains because of a reduction in its wage share (to which is associated a decrease in export prices), is offset by a contemporaneous increase in competitiveness in the other two countries. Moreover, we find that NAFTA is overall wage-led: the profit share has a negative effect on aggregate demand. Chapter 4 tests whether it is possible that the effect of the profit share on growth is different in the long run and in the short run. Following Blecker (2014) our hypothesis is that in the short run the growth regime is less wage-led than it is in the long run. The results of our empirical investigation support this hypothesis, at least for the United States over the period 1950-2014. The effect of wages on consumption increases more than proportionally compared to the effect of profits on consumption from the short to the long run. Moreover, consumer debt seem to have only a short-run effect on consumption indicating that in the long run, when debt has to be repaid, consumption depends more on the level of income and on how it is distributed. Regarding investment, the effect of capacity utilization is always larger than the effect of the profit share and that the difference between the two effects is higher in the long run than in the short run. This confirms the hypothesis that in the long run, unless there is an increase in demand, it is likely that firms are not going to increase investments even in the presence of high profits. In addition, the rentier share of profits – that comprises dividends and interest payments – has a long-run negative effect on investment. In the long run rentiers divert firms’ profits from investment and, therefore, it weakens the effect of profits on investment. Finally, Chapter 5 studies the possibility of structural breaks in the relationship between functional distribution of income and growth. We argue that, from the 1980s, financialization and the European exchange rate agreements weakened the positive effect of the profit share on growth in Italy. The growth regime is therefore becoming less profit-led and more wage-led. Our results confirm this hypothesis and also shed light on the concept of cooperative and conflictual regimes as defined by Bhaduri and Marglin (1990).

This thesis comprises three chapters. In the first chapter, I analyze three main facts from the recent experience of capital flows in the European monetary union. First, core and periphery countries ran widening current account surplus and deficit positions. Second, core countries intermediated gross capital flows from the rest of the world, which financed deficits in the periphery. Finally, a pervasive sovereign debt crisis took place. I argue that institutional features of the Economic and Monetary Union have contributed to these facts. First, I show in a theoretical model that subsidies on holdings of euro-denominated assets contribute to all three phenomena. Second, I build a dynamic model of an economic union. The model generates predictions for net and gross asset flows that quantitatively replicate the EMU experience. Finally, I propose a novel theoretical mechanism magnifying the severity of a debt crisis in an economic union. In the second chapter, I study the interaction between sovereign default risk, firm-level financial frictions, and fiscal policy. This research is motivated by the severe contraction observed in Italy during the euro area sovereign debt crisis. I show that a sovereign debt crisis causes a reduction of credit to firms, occurring through the channel of domestic fiscal policy. A fiscal tightening in the country in crisis causes a reduction of firms’ profits and an increase in their default risk. Secondly, I show that firms are heterogeneous in the degree to which they are affected by a crisis: Firms in the non-tradable sector are more vulnerable, as demand for their output falls in a crisis. In the third chapter, I study the determinants of time-varying volatility in interest rates on emerging market economies’ external debt. I show that a baseline model of endogenous sovereign default quantitatively replicates the pattern of time-varying volatility observed in the data. The model features a key non-linearity in the policy function for the interest rate on external debt. In the absence of shocks to the second moment of stochastic variables, the model generates a path of interest rates that is more volatile in bad times, when output is low and debt is high.

This thesis deals with different types of uncertainty in various macroeconomic contexts and investigates ways in which these can be accommodated by adopting flexible techniques that allow a robust inference in estimation, testing and prediction. This thesis covers a wide range of aspects in macroeconomic analysis, including the choice of an appropriate unit root test, inference when the presence of breaks and the autocorrelation properties of data are unknown, characterisation of inflation dynamics when structural and specification uncertainty are present, as well as model uncertainty in forecasting when real-time data are available. Chapter 1 presents the general motivations and describes the main research objectives and methodology for each chapter, providing a thesis outline at the same time. Chapter 2 examines the behaviour of OLS-demeaned/ detrended and GLS-demeaned/ detrended unit root tests that employ stationary covariates in situations where the magnitude of the initial condition of the time series under consideration may be nonnegligible. We show that the asymptotic power of such tests is very sensitive to the initial condition; OLS- and GLS- based tests achieve relatively high power for large and small magnitudes of the initial condition, respectively. Combining information from both types of test via a simple union of rejections strategy is shown to effectively capture the higher power available across all initial condition magnitudes. In Chapter 3, we consider a two-step procedure for estimating level break size(s) when the presence of the structural break(s) is uncertain and when the order of integration of the data is unknown. In other words, we deal with uncertainty over the appropriate filtering of the data, as well as structural uncertainty over the existence of a break. Our approach is motivated by the well known interplay between the unit roots and structural changes: Evidence in favour of unit roots can be a manifestation of structural changes and vice versa. The proposed procedure is shown to exhibit substantial accuracy gains in estimating the level break-size and breakpoint. Chapter 4 provides a characterisation of U.S. inflation dynamics within a generalised Phillips Curve framework that accommodates uncertainties about the duration a given Phillips Curve holds and the specification of the relationship, in addition to parameter and stochastic uncertainties accommodated within a typical Phillips Curve analysis. Our approach is based on an innovative method to deal with such uncertainties based on Bayesian model averaging techniques. Employing data for the U.S. in the period 1950q1- 2012q4, the estimated version of the "meta" Phillips Curve provides an interesting characterisation of inflation dynamics which is in accordance with a number of distinguished studies. Chapter 5 investigates the extent to which nowcast and forecast performance is enhanced by the use of real-time datasets that incorporate past data vintages and survey data on expectations in addition to the most recent data. The paper proposes a modelling framework and evaluation procedure which allow a real-time assessment and a final assessment of the use of revisions and survey data judged according to a variety of statistical and economic criteria. Both survey data and revisions data are found to be important in calculating density forecasts in forecasting the occurrence of business cycle events. Through a novel "fair bet" exercise, it is shown that models that incorporate survey and/or revisions data achieve higher profits in decision-making. The analysis also highlights the need to focus on future growth and inflation dynamics relevant to decision-makers rather than relying on simple point forecasts.

This dissertation consists of three papers on finite sample properties of the maximum likelihood (ML) estimator of parameters in continuous time dynamic models. In the first chapter, we obtain analytical expressions to approximate the bias and variance of the ML estimator in a univariate model with a known mean. We analyze two cases, when the variable of interest is a stock and when it is a flow. We also study the effect of the initial condition by considering both a fixed and a random initial value. A Monte Carlo study suggests that the performance of the formulae is reasonably good. Analytical bias expressions are then used in the second chapter to compute bias corrected estimators. This chapter also explores other methods for bias reduction that have been employed in the literature, these being the bootstrap, jackknife, and indirect inference. A Monte Carlo experiment shows that all approaches deliver substantial bias reductions. We also explore the robustness of the results to model misspecifications, and provide an empirical application to the broad effective exchange rate series for euro area. The third chapter derives the exact discrete representation corresponding to a cointegrated system of mixed first- and second-order stochastic differential equations with mixed sampling and observable stochastic trends. We also provide some formulae to implement the Gaussian estimation and conduct a Monte Carlo experiment to examine the finite sample properties of the Gaussian estimator. Monte Carlo simulations suggest that the bias and variance of the estimators of the short-run, long-run and adjustment coefficients as well as the variance of the intercepts are mainly determined by the data span, while the bias and variance of the covariance coefficients seem to depend on the sample size.

This thesis traces the history of heterogeneous agent computational economics, and then presents original research in three different strands of heterogeneous agent economics. This includes disequilibrium dynamics, wage posting theory, and heterogeneous agent dynamic stochastic general equilibrium.

We apply a general-to-specific modelling approach to estimate a six-dimensional parsimonious structural vector error-correction model of the US economy. We use graph theory methods to determine the instantaneous causal structure of the system from the data thus, overcoming the common problem of making ad-hoc assumptions about the order of causality. Model reduction procedures allow us to control for the curse-of-dimensionality inhibiting such high-dimensional vector autoregressive systems. The corporate-government bond yield risk premium is identified as one of five cointegration relations characterising the economy. Monetary policy reacts to the risk premium and the term structure of interest rates long-run relationships. Monetary policy is also neutral in the long-run, with a contractionary shock to the federal funds rate leading to only a temporary increase in bond yields and fall in inflation and capacity utilisation. In addition, corporate bonds react faster and by more than do Treasuries, making the corporate-government bond yield spread a potential target in implementing monetary policy. Joint modelling of fiscal and monetary policies should elucidate on their interaction. We construct an eight-dimensional parsimonious structural vector equilibrium correction model of the US macroeconomy over the last five decades. The fiscal deficit is found to be one of five cointegration vectors, constraining fiscal policy in the long-run. In contrast, the share of the government sector is found not to be mean reverting. Impulse-response analysis of the parsimonious system facilitates precise measurement of the dynamic Keynesian fiscal multiplier, where we distinguish between deficit-spending and balanced-budget spending shocks (as in the so-called Haavelmo, 1945, theorem). Our estimates of the long-run multiplier are 1.62 for a bond-financed spending shock and 1.77 for a tax-financed spending shock, with both being greater than 1 and significant at a 95% confidence level. Monetary policy is neutral in the long-run except for the level of output on which a permanent effect is observed. Increasing the federal funds rate by a percentage point is followed by falling tax revenues while government spending is largely unchanged, thus inflating the fiscal deficit in the short-run and medium-run. One aspect of increasing inter-dependence between economies can be seen in the internationalisation of financial markets. We investigate the propagation of domestic and foreign shocks through US and UK financial markets for money, bonds, equities, and the exchange rate. We focus on within-market, cross-market, and cross-border linkages. This study is especially relevant for small, open economies which are most exposed to foreign-originated shocks. US markets dominate cross-border spillover effects and explain about 7.5% of the variation in UK asset markets. This is in contrast to the 0.15% of the variation in US financial markets that is explained by shocks from UK markets. The strongest effects are in equity and money markets. Own idiosyncratic shocks have the highest explanatory power and account for 54%-94% of the variation in returns.

In this thesis we bring a series of contributions to the topic of multivariate asset modelling with dependence. In the first part of the thesis (chapters 2, 3 and 4) we look at equity modelling by factor models obtained by multivariate subordination of Lévy basis and discuss multi-asset derivative pricing by Fourier transform methods. More specifically, in the second chapter we propose a construction method for obtaining factor models based on multivariate subordination which extends the results of Barndorff-Nielsen et al. (2001). A lemma describing the characteristic function for the entire class of models is provided which opens the gates for multi-asset derivative pricing by Fourier transform methods under this class of models. Classification, parametrisation and the dependence structure details for the models in this class are then discussed in the second part of the chapter. The chapters 3 and 4 propose each a different three-factor model for the evolution of equity returns and provide the details of martingale asset pricing, calibration and multi-asset derivative pricing methods under the specific model. The specific applications that are treated are the spread options, in chapter 3 and CVA evaluation for forward contracts, in chapter 4. In the second part of the thesis (chapter 5) we look at the multi-name credit modelling in the context of factor models built by time-changes. Specifically, we propose a factor extension of the univariate default model proposed in Packham et al. (2013)and then we discuss the calibration and the pricing methodology (including details of their implementation) for single-name and multi-name credit derivatives contracts. The specific applications that are treated are the pricing and calibration on Credit Default Swaps, Credit Index Default Swaps and Index Tranches (synthetic CDOs).

Farm input subsidies are assumed to improve agricultural production and productivity for small resource poor farmers in developing countries by promoting the use of improved farm inputs, mainly inorganic fertilizers and hybrid seeds. This is expected to contribute to increased income from produce sales, improved food security at household and national levels, and consequently, contributing to poverty alleviation. Limited existing empirical evidence on the impact of farm input subsidies on food marketing, household welfare and migration suggests marginal effects. This thesis contributes to the existing literature by analysing the impact of farm input subsidies on farm households' maize market participation, welfare and migration by using the most recent nationally representative integrated household panel survey data for Malawi of 2010 and 2013. This thesis uses the quantity of subsidised fertilizer the household redeemed to measure the impact of farm input subsidies. Different indicators and empirical models from the ones used in the existing literature on food marketing, household welfare and migration effects of farm input subsidies are used to explore more empirical evidence. The main findings are that farm input subsidies increase farm households' market participation and food security; and reduces household members' migration. The results on market participation indicate that subsidised fertilizer increases both farmers' maize market participation as sellers and quantities they sell. On migration, subsidised fertilizer reduces rural to urban and rural to rural migration of household members. While on household welfare, the results suggest that subsidised fertilizer increases available per capita calories per day, household's months of food secure, and probability of being food secure from own production of cereals and legumes, but has statistically insignificant effects on household annual consumption expenditure.

This thesis consists of three self contained chapters. In the first chapter, we re-assess the problem of general equilibrium models in matching the behaviour of the real exchange rate. We do so by developing a two country general equilibrium model with non-traded goods, home bias, incomplete markets and partial degrees of pass through as well as nominal rigidities both in the goods and labour markets. Our key finding is that presenting an encompassing model structure improves the performance of the model in addressing the persistence of the real exchange rate and its correlation with relative consumption, but this improvement is at the expense of failing to replicate some other characteristics of the data; where the model does a good job at explaining the failure of international risk sharing and generates substantial real exchange rate persistence, it fails to match several other observed business cycle features of the data, such as the volatility of real exchange rate and consumption. In the second chapter of the thesis, we study the importance of the extensive margin of trade for the UK export dynamics. During the great recession, UK exports fell by around 8% with respect to their trend, more than a standard general equilibrium model would predict. In this paper, we ask whether an estimated two country DSGE model with extensive margin of trade can explain this drop and the main business cycle features of the UK economy. The extensive margin improves the overall performance of the model, but cannot improve substantially on replicating the behaviour of exports. Much of the trade collapse during the great recession can be explained by a shock to export entry costs associated with tighter financial conditions. Understanding the trade balance dynamics has a central role in studies of emerging market business cycles. In the last chapter, we investigate the driving sources of emerging market trade balance fluctuations by developing a two country, two sector international real business cycle model with investment and consumption goods sectors. We estimate the model for Mexico and US data and find that a slowly diffusing permanent investment specific technology shock that originates in the US accounts for most of the trade balance variability in Mexico. This shock is also the key driver of business cycle fluctuations in Mexico.