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Dynamic stochastic general equilibrium (DSGE) models are the common workhorse of modern macroeconomic theory. Whereas story-telling and policy analysis were in the forefront of applications since its inception, the forecasting perspective of DSGE models is only recently topical. In this study, we perform a post-mortem analysis of the predictive power of DSGE models in the case of Austria's Great Recession in 2009. For this purpose, eight DSGE models with different characteristics (small and large models; closed and open economy models; one and two-country models) were used. The initial hypothesis was that DSGE models are inferior in ex-ante forecasting a crisis. Surprisingly however, it turned out that not all but those models which implemented features of the causes of the global financial crisis (like financial frictions or interbank credit flows) could not only detect the turning point of the Austrian business cycle early in 2008 but they also succeeded in forecasting the following severe recession in 2009. In comparison, non-DSGE methods like the ex-ante forecast with the Global Economic (Macro) Model of Oxford Economics and WIFO's expert forecasts performed comparable or better than most DSGE models in the crisis.

In the first chapter, I quantify the welfare effect of eliminating the U.S. capital income tax under international financial integration. I employ a two-country, heterogeneous-agent incomplete markets model calibrated to represent the U.S. and the rest of the world. Short-run and long-run factor price dynamics are key: after the tax reform, post-tax interest rate increases less under financial openness relative to autarky. Therefore the wealth-rich households gain less. Post-tax wages also fall less, so the wealth-poor are hurt less. Hence, the fraction in favor of the reform increases, although the majority still prefers the status quo. Aggregate welfare effect to the U.S. is a permanent 0.2 % consumption equivalent loss under financial openness which is 85.5 % smaller than the welfare loss under autarky. The second chapter aims to answer two questions: What helps forecast U.S. inflation? What causes the observed changes in the predictive ability of variables commonly used in forecasting US inflation? In macroeconomic analysis and inflation forecasting, the traditional Phillips curve has been widely used to exploit the empirical relationship between inflation and domestic economic activity. Atkeson and Ohanian (2001), among others, cast doubt on the performance of Phillips curve-based forecasts of U.S. inflation relative to naive forecasts. This indicates a difficulty for policy-making and private sectorâs long term nominal commitments which depend on inflation expectations. The literature suggests globalization may be one reason for this phenomenon. To test this, we evaluate the forecasting ability of global slack measures under an open economy Phillips curve. The results are very sensitive to measures of inflation, forecast horizons and estimation samples. We find however, terms of trade gap, measured as HP-filtered terms of trade, is a good and robust variable to forecast U.S. inflation. Moreover, our forecasts based on the simulated data from a workhorse new open economy macro (NOEM) model indicate that better monetary policy and good luck (i.e. a remarkably benign sample of economic shocks) can account for the empirical observations on forecasting accuracy, while globalization plays a secondary role. / text

This collection of essays examines the topic of macroeconomic stabilisation in an international context, focusing on monetary policy, capital controls and exchange rates. Chapter 1, written in collaboration with Giancarlo Corsetti and Joao Duarte, reconsiders the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions. In Chapter 2, I build a two-country, two-good model to examine the welfare effects of capital controls, finding that under certain circumstances, a shut-down in asset trade can be a Pareto improvement. Further, I examine the robustness of the result to parameter changes, explore a wider set of policy instruments and confront computational issues in this class of international macroeconomic models. I document that within an empirically relevant parameter span for the trade elasticity, the gains from capital controls might be significantly larger than suggested by previous contributions. Moreover, I establish that a refined form of capital controls in the shape of taxes and tariffs cannot improve upon the outcome under financial autarky. Finally, results show that the conjunction of pruning methods and endogenous discount factors can remove explosive behaviour from this class of models and restore equilibrating properties. In Chapter 3, I use a panel of 20 emerging market currencies to assess whether a model that combines fundamental and non-fundamental exchange rate forecasting approaches can successfully predict risk premia (i.e. currency excess returns) over the short horizon. In doing so, I aim to overcome three main shortcomings of earlier research: i) Sensitivity to the chosen sample period; ii) seemingly arbitrary selection of explanatory variables that differs from currency to currency; and iii) difficulty in interpreting forecasts beyond the numerical signal. Based on a theoretical model of currency risk premia, I use real exchange rate strength combined with indicators for carry, momentum and economic sentiment to homogeneously forecast risk premia across all 20 currencies in the sample at a monthly frequency. In doing so, the model remains largely agnostic about structural choices, keeping arbitrarily imposed restrictions to a minimum. Results from portfolio construction suggest that returns are significant and robust both across currencies as well as over time, with Sharpe Ratios in out-of-sample tests above 0.7.

En esta tesis estudio varias cuestiones de política monetaria y fiscal usando modelos de equilibrio generales completamente micro-fundados. El primer capítulo de esta tesis trata la cuestión de cómo la políticas monetarias y fiscales se deben conducir en una unión monetaria donde hay un solo banco central que fija el tipo de interés común mientras que el gobierno todavía conserva independencia completa en las decisiones de políticas fiscales. En el segundo capítulo se dedica a estudiar si es posible racionalizar en un modelo keynesiano completamente micro-fundado la existencia de una unión monetaria. El último capítulo investiga en qué medida el incentivo de las autoridades de política económica en una economía abierta de mejorar los términos de intercambio en su favor se puede compensar por la externalidad de relocalización de la producción (home market effect). / In this thesis I study different kinds of monetary and fiscal policy issues by using fully microfounded general equilibrium models. The first chapter addresses the question of how monetary and fiscal policy should be conducted in a monetary union where there is a single central bank that sets the common interest rate while governments still retain full independence in fiscal policy decisions. The second chapter is devoted to study whether it is possible to rationalize, within a fully microfounded New Keynesian framework, the existence of a monetary union. The last chapter investigates to what extent the incentive of open economy policy makers to improve the terms of trade in their favour can be outweighed by the production relocation externality (the so called home market effect).