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BUSINESS CYCLES, FISCAL STABILIZATION AND VERTICAL FOREIGN DIRECT INVESTMENT: ESSAYS IN INTERNATIONAL MACROECONOMICS

My dissertation studies various questions falling into the broad context of
macroeconomics and international economics. The questions have macroeconomic
components because they are concerned with the behavior of aggregates. Specifically,
the second and third chapters of my dissertation study the causes of fluctuations in
aggregate macroeconomic variables and the way policy can be coordinated
internationally to reduce these fluctuations, respectively. In addition, chapters III and IV
address questions that fall into the realm of international economics. They are concerned
with the optimal exchange rate regime between two countries, the consequences of
partial exchange rate pass-through and the effect of an increase in vertical Foreign Direct
Investment (FDI) by domestic firms. The framework of my analysis is given by different
versions of general equilibrium models.
The second chapter of my dissertation decomposes fluctuations in aggregate observables
for the UK economy during the 1980s recession. Using a modern accounting procedure,
I estimate parameters that describe the economy using annual data from 1970 to 2002. Then, I simulate different versions of the model to find the distortions that are essential
in driving the observed fluctuations. I find labor market distortions to be crucial in
accounting for the episode, suggesting that the policies of the time were well targeted
and effective.
The third chapter of my dissertation studies policy coordination in a two-country
framework allowing for partial pass-through. In particular, both countries are assumed to
have monetary and fiscal stabilization instruments available. The optimal setting of these
instruments under differing pass-through regimes is analytically derived. Fiscal policy is
found to be used in a counter-cyclical fashion. In addition, the magnitude of fiscal
stabilization is the largest when pass-through is partial.
In the fourth chapter, I study the consequences of vertical FDI on aggregate productivity
and welfare. The framework allows for heterogeneity across firms in two dimensions. It
is firms that are at a disadvantage with respect to manufacturing costs that are benefiting
most from moving their production process abroad. Overall, the ability to engage in
vertical FDI increases productivity, lowers prices and thus increases welfare.

Identiferoai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-2009-05-525
Date16 January 2010
CreatorsKersting, Erasmus K.
ContributorsJansen, Dennis W.
Source SetsTexas A and M University
Languageen_US
Detected LanguageEnglish
TypeBook, Thesis, Electronic Dissertation
Formatapplication/pdf

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