Thesis advisor: Fabio Ghironi / Thesis advisor: Susanto Basu / The present dissertation is composed by three essays. The first essay is titled ``Comparative Advantage, Service Trade, and Global Imbalances''. The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in export of services and current account balances in a large sample of OECD and developing countries. Starting from these new stylized facts, I propose in this essay a ``service hypothesis'' for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place in the last 15 years. I use a structural gravity model to quantify the extent of this asymmetry. I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects savings decisions. Finally, I explore the quantitative relevance of this explanation for global imbalances. A multi-period version of the model, fed with the asymmetric trade liberalization path found in the data, generates a current account deficit of about 1% of GDP (roughly 20% of what was observed in the U.S. in 2006). The policy implications of the analysis proposed could be relevant for the evolution of the WTO DOHA Development Round. A major focus on services, in fact, could help expanding the ``policy space'' faced by the negotiators, possibly increasing the likelihood of a successful conclusion of the round. Moreover, this paper inform also the recent debate about the need of a revaluation of the yuan. Allowing the U.S. to increase its exports of services (not necessarily to China) might help alleviating global imbalances even without movements in the exchange rates. The second essay is titled ``Estimating Trade and Investment Flows: Partners and Volumes''. I present empirical evidence from a large sample of countries for the period 2000-2006. Bilateral foreign direct investment (FDI) flows are almost never observed in the absence of bilateral trade flows, thus configuring an order of trade and investment flows. I document a similar pattern using bilateral foreign affiliate sales (FAS), aggregating them up from a large firm level dataset (ORBIS), which includes over 45,000 firms. I propose a model where heterogeneous firms face a proximity-concentration tradeoff when they decide whether to serve foreign markets through export or FDI. I derive theory-based gravity-type equations for the aggregate bilateral trade and foreign affiliate sales (FAS) flows. I then suggest a two-stage estimation procedure. In the first stage, a ordered Probit model is used to retrieve consistent estimates of the terms needed to correct the flows equations for heterogeneity and selection. In the second stage, a maximum likelihood estimator is applied to the corrected trade and FAS equations. The main results of the analysis are as follows: 1) The impact of distance, border and regional trade agreements on bilateral foreign affiliate sales becomes substantially smaller after controlling for selection and firms' heterogeneity (hence separating the impact on the extensive versus the intensive margin). 2) The same ``attenuation'' result is found also for the trade equations, consistently with HMR. 3) When FAS are observed, failing to take this into account when correcting for heterogeneity and selection in the trade equations leads to differences in the estimated coefficients. The third essay is titled ``Some Evidence on the Importance of Sticky Wages'', and is co-authored with Susanto Basu and Peter Gottshalk. Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from the Survey of Income and Program Participation (SIPP) for the period 1996-1999. The SIPP provides high-frequency information on wages, employment and demographic characteristics for a large and representative sample of the US population. The main results of the analysis are as follows. 1) After correcting for measurement error, wages appear to be very sticky. In the average quarter, the probability that an individual will experience a nominal wage change is between 5 and 18 percent, depending on the samples and assumptions used. 2) The frequency of wage adjustment does not display significant seasonal patterns. 3) There is little heterogeneity in the frequency of wage adjustment across industries and occupations 4) The hazard of a nominal wage change first increases and then decreases, with a peak at 12 months. 5) The probability of a wage change is positively correlated with the unemployment rate and with the consumer price inflation rate. To a certain extent, the three essays presented here are self-contained and deal with three different issues regarding international economics and macroeconomics. Going to a deeper level, however, the essays are linked by a common feature: they are three examples of economic research across fields. The first essay, in fact, is an example of the growing fields at the edge between international trade and international macroeconomics. While the trade of goods and services and the dynamics of macroeconomic variables such as the current account are highly interconnected in the real world, these two fields have been characterized by a large divide in the last thirty years in the economic literature. The second essay is an example of a joint study of international trade and investment flows. Also in this case, while conceptually clearly interconnected, these topics have been usually studied separately by the economic literature. Finally, the third essay is an example of research across fields (labor economics and macroeconomics) and techniques (micro-level analysis informing macroeconomic models). In this last case, macroeconomists were interested in estimating certain wage dynamics parameters highly used in macro models. However, they were largely unaware of the fact that labor economists had the data to answer those research questions. On the other hand, the labor economists had the data, but not the questions. I hope that these essays might help increasing further the awareness that more communication between economists working in different fields can bring to valuable insights. / Thesis (PhD) — Boston College, 2011. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This thesis deals with global imbalances in the world economy. Chapter one focuses on balance of payments theory, savings and investment. It also specifies global imbalances and presents the most important periods of their development. Chapter two analyses main causes of global imbalances and discusses the relationship between imbalances and current economic crisis. Chapter three describes current development of global imbalances, anticipated development in future and analyses possible solutions at national and international level.

The aim of this thesis is to find a reason why the US current account is in deficit, which is in contradiction of theoretical expectation. Prevailing discusion is about savings glut and defects in monetary policy. In our opinion both sides ignore China`s rising influence and real exchange rate. Balassa-Samuelson`s effect predict real exchange rate appreciation in converging economies, as long as their real GDP grows. Analysis of real exchange rate of Renminbi shows contradiction with Balassa-Samuelson effect, which is attributed to conditions on Chinese labour market. Chinese internal imbalance has impacts on global economy and nonappreciating real exchange rate of Renminbi deforming international trade is one of the factors that causes US current account deficit.

Le système monétaire international articulé autour d'une monnaie cœur et de monnaies périphériques évoluant dans des régimes de change différents s'avère intrinsèquement instable et a favorisé la hausse des déséquilibres de comptes courants et la crise financière de 2007. La littérature traitant des comportements d'épargne laisse présager d'une reprise de ces déséquilibres et des risques qui en découlent. Afin de rechercher des voies de stabilisation politiquement réalisables, nous avons évalué les taux de change d'équilibre des pays les plus impliqués dans les déséquilibres par une approche positive afin d'obtenir des résultats acceptables par les responsables politiques. Notre travail montre que le taux de change n'a joué qu'un rôle modéré dans le développement des déséquilibres et la littérature montre qu'il n'a joué qu'un faible rôle dans leur ajustement.Par ailleurs, les politiques monétaires accommodantes mises en place suite à la crise économique font peser des risques sur la stabilité financière. Compte tenu de la multiplicité des régimes de change et de la difficulté de prévoir et de maitriser les variations des taux de change, les risques liés aux déséquilibres de comptes courants et à l'instabilité financière nécessitent d'être appréhendés par d'autres voies d'ajustement que celles du taux de change. Nous montrons la faisabilité de zones monétaires permettant l'applicabilité de politiques monétaires appropriées en cas d'asynchronisme des cycles économiques favorisant la mise en place de politiques budgétaires à la fois appropriées pour limiter la reprise de déséquilibres mais également contracycliques. / The International Monetary System built around a core currency, the US dollar and peripheral currencies working in various exchange rate regimes appears inherently unstable and has fostered the rise of global current account imbalances and the financial crisis in 2007. The literature on changes in savings behavior suggests a resumption of these imbalances and associated risks. Their partial adjustment would therefore only be cyclical, resulting from the economic crisis in 2008.In view of looking for politically achievable ways to stabilize imbalances, we evaluated the equilibrium exchange rate of the countries or regions most involved in the imbalances by a positive approach to achieve results acceptable by policymakers. Our work shows that the exchange rate has played a moderate role in the development of imbalances and recent literature suggests that it played only a minor role in their adjustment.Moreover, accommodative monetary policies implemented after the economic crisis constitute risks to financial stability. Given the multiplicity of exchange rate regimes and the difficulty to forecast and manage the changes in exchange rates, risks related to global current account imbalances and financial instability need to be tackled by other channels of adjustment than the exchange rate. Our work therefore concerns, in theory but also pragmatically, options that could both reduce the risk of financial instability and that of the resumption of global current account imbalances. We show the feasibility of monetary zones allowing the implementation of appropriate monetary policies in case of asynchrony of economic and financial cycles. We conclude with the stabilizing ro

The goal of this thesis is to study the international portfolio choices of countries in an asymmetric world. In practice, this corresponds to the salient facts of country portfolios and the underlying structural asymmetries between developing and developed countries in a financially integrated world. In the three main chapters of the thesis, frameworks are developed to advance our understanding of the way various country asymmetries contribute to the emergence of these persistent phenomena in international capital markets. The first essay studies the question of why developing countries experience net equity inflows and bond outflows while developed countries experience net equity outflows and bond inflows, the so-called ‘two-way capital flows'. The analysis is based on an open-economy New Keynesian model of endogenous country portfolios with representative agents in each country. The model is so general that it allows one to perform an assessment of the roles of a long list of country asymmetries in determining the pattern of two-way capital flows. While steady-state net country portfolios are zero in the first essay, the second and third essays consider the situations where this is not true. The second essay presents an OLG model of an endowment economy with a country asymmetry in households' patience. Global imbalances in net positions emerge. Gross portfolio positions are obtained as the sum of standard self-hedging and, moreover, the hedging due to external imbalances. The valuation effects of external adjustments between creditor and debtor countries are rationalized. By introducing non-tradable risks, the third essay models a production OLG economy with a country asymmetry in wealth division. Global imbalances in net positions again arise. Gross portfolio positions are composed of self-hedging, hedging of non-tradable income and hedging of external interest payments, which accounts for the reality of asymmetric asset home bias, i.e. although assets are locally biased everywhere, the pattern is more pronounced in creditor countries.

This study provides an empirical analysis of Shadow banking as a factor influencing cross- border financial flows. It builds upon emerging literature on Shadow banking and empirical literature on global imbalances and global financial flows. The aim of the thesis is to test three hypotheses, which relate global financial flows to lending, change in cross-border bank liabilities, and shadow banking, respectively. The second and third hypotheses are tested on gross capital flows, which, in contrast to net flows, better reflect financing activities. The results suggest that Shadow banking activities are related to higher gross capital flows in periods, when this sector is growing. These flows, however, tend to dry up when Shadow banking activities level off or decline. Among other important factors is the output growth differential and global risk aversion. JEL Classification E44, G20, G23, F32, F34, F21, F65 Keywords Shadow Banking, Global Imbalances, Capital Flows, Financial Stability Author's e-mail tomas.vaclavicek@gmail.com Supervisor's e-mail petr.teply@fsv.cuni.cz

The objective of this thesis is to define how strong is the influence of investment and macroeconomic climate of Arab exporters on how countries of Gulf Cooperation Council treat their income from the export of hydrocarbons. I would like to answer the question whether they invest their funds in domestic economies or in markets in other part of the world. I will try to point out the weaknesses of the investment environment and opportunities for remedies, which would lead to the strengthening of internal and external balance and to increase in the competitiveness of the GCC countries in the global economy.

Cette thèse a pour objectif d‟étudier les déséquilibres globaux avec un modèle multinational empirique en stock-flux cohérent. La dernière crise financière de 2008, qui a été suivie par une crise économique mondiale, a reconfiguré l‟évolution de nombreuses variables macroéconomiques. Les déséquilibres globaux se sont fortement résorbés et le maintien de cet ajustement résulte essentiellement de facteurs macroéconomiques conjoncturels, en raison de l‟effondrement de la demande. Compte tenu des changements majeurs durant ces dernières années, nous examinons dans notre recherche les perspectives de croissance future aux États-Unis, en Chine et en Europe dans le cas des poursuites des politiques économiques actuelles, à l‟horizon 2030. Pour cela, nous utilisons d‟abord le modèle C.A.M développé par F. Cripps, ensuite nous estimons notre propre modèle multinational à cinq régions. L‟analyse se focalise sur l‟évolution des déséquilibres globaux, la croissance économique et le taux de change. Les projections du scénario de base de notre modèle multinational, dans le cas de la poursuite des politiques actuelles, montrent que l‟ajustement des déséquilibres externes est maintenu au prix de déséquilibres internes. / This thesis aims to study the global imbalances with an empirical multinational stock-flow consistent model. The last financial crisis, which was followed by a global economic crisis, has reconfigured the evolution of many macroeconomic variables. Global imbalances have strongly resorbed and this continuing adjustment results mainly from cyclical macroeconomic factors, due to the collapse in demand. Given the major changes in the recent years, we analyze in our research growth prospects in the United States, in China and Europe in the case of the continuation of current economic policies, over the period running up to 2030. For that purpose, we first use the C.A.M model developed by F. Cripps. We then estimate our own five bloc multinational model. We focus on analyzing the evolution of global imbalances, the economic growth and the exchange rate. The baseline scenario projections of our multinational model, in the case of the continuation of the current economic policies, show that the adjustment of the external imbalances is maintained at the cost of internal imbalances.

Cette thèse a pour objectif d'étudier le lien entre les régimes de change, les mésalignements de change et les déséquilibres globaux. Elle est conduite dans le cadre d'un panel évolutif d'économies allant des pays en développement aux pays développés. Elle couvre trois principaux thèmes. Nous examinons d'abord les mésalignements de change dans la zone CFA et le projet d'union monétaire en Afrique de l'Ouest. Nous étudions ensuite les implications du choix par un pays d'un régime de change sur sa capacité de résilience aux déséquilibres externes. Enfin, nous analysons l'influence des mésalignements de change sur la persistance des déséquilibres globaux, ainsi que les interactions entre les déséquilibres macroéconomiques.Nous montrons que la monnaie ancre (l'euro) joue un rôle prédominant dans l'explication des mésalignements du franc CFA, toute chose égale par ailleurs, y compris les fondamentaux du franc CFA. Sur la base d'une nouvelle méthodologie basée sur la synchronisation des mésalignements que nous proposons, nous mettons en évidence qu'il existe des similarités entre les pays de l'UEMOA, le Ghana, la Gambie et la Sierra Leone dans le cadre d'une union monétaire. En revanche, les cycles ne sont pas suffisamment synchronisés entre ce bloc et le Nigeria qui reste structurellement plus proche des pays de la CEMAC.Concernant les pays d'Afrique subsaharienne, nous montrons que les régimes de change flexibles sont plus efficaces pour limiter déséquilibres externes et pour assurer la soutenabilité externe.Nous montrons que la persistance des déséquilibres de comptes courants est fortement et asymétriquement liés aux mésalignements de change dans les pays développés et que les déséquilibres macroéconomiques interagissent fortement à travers une relation causale. / This thesis aims to study the link between exchange rate regimes, exchange rate misalignments and external imbalances. Our research is conducted in the context of an evolving panel of economies ranging from developing countries to developed countries. Our investigation covers three main themes. We first we examine exchange rate misalignments in the CFA zone and the monetary union project in West Africa. We then we study the implications of the choices made by a country concerning exchange rate regimes with regard to their ability to be resilient to external imbalances in sub-Saharan African countries. Finally, we analyze the influence of exchange rate misalignments on the persistence of global imbalances, as well as the interactions between macroeconomic imbalances.We show that the anchor currency (the euro) plays a predominant role in explaining the CFA franc misalignments, all else being equal, including economics fundamentals of the CFA franc. Relying on a new methodology based on synchronization misalignments that we propose, we highlight that there are some similarities between the WAEMU countries, Ghana, Gambia and Sierra Leone. In contrast, the cycles of misalignments are not sufficiently synchronized between this block and Nigeria, which remains structurally closer to the CAEMC countries.With regard to sub-Saharan Africa, we show that the flexible exchange rate regimes are more effective in limiting external imbalances and to ensure external sustainability.We show that the persistence of current account imbalances is strongly and asymmetrically related to exchange rate misalignments in industrialized countries and that the macroeconomic imbalances strongly interact through a causal relationship.

The thesis deals with a role of foreign exchange reserves in developing countries. Main attention is devoted to the trends in development in foreign exchange reserves in recent years. The individual questions are analyzed in the context of accumulation of foreign exchange reserves. There are described connections between exchange reserves and individual periods of economic emergence in the developing countries. The thesis presents the meaning of exchange reserves in different types of foreign exchange regimes. There is described influence of exchange reserves on implementation of monetary policy. Foreign exchange reserves are divided in dependence on their origin. There is defined the relationship between accumulation of exchange reserves and net international investment position. The thesis deals with the role of foreign exchange reserves in global imbalances too. In the empirical part there are analyzed some questions described in theoretical part, using the cases of the Czech Republic, Poland and Hungary.