Browsing by Subject "International Economics"

Now showing 1 - 5 of 5
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    Essays in Heterogeneous Agent Macroeconomics
    (2018-06) Mrkonich, Robert
    This dissertation consists of three chapters. The first chapter surveys the literature on the solving of heterogeneous agents models. From the Bewley/Huggett/Aiyagari models of the 1990s that focus on idiosyncratic risk to the addition of aggregate risk in models based on Krusell-Smith’s heterogeneous agent model have become standard workhorses of macroeconomics. This is unlikely to change as the increased availability of household level data and improvements in computational speed have made previously infeasible models not only solvable but also able to be disciplined. The second chapter presents a model of international transmission of financial shocks where the country of origin is fundamental to the transmission of the shock. Highly developed countries tend to accumulate larger positions in riskier, but more productive, capital flows, as seen in the data. When a financial shock occurs, the ability to insure is impaired, which lessens demand for risky foreign capital, which lowers production abroad. We interpret the Financial Crisis of 2008 as a change in the ability of financial market quality and calibrate the model to match the change in capital flows. Importantly, the calibrated model matches not only changes in capital flows, but also relative movements in interest rates as well as changes in debt flows. The third chapter examines the concern about the observed decline in entrepreneurship over the past 30 years. This chapter argues the decline reflects a change in the timing of entrepreneurship decisions because of increased educational attainment and its associated cost. A greater number of older workers and fewer young people are choosing to become entrepreneurs. I find that trends in education costs, the skill premium, and the compression of morbidity quantitatively explain the change in the age composition of entrepreneurs. In a series of sensitivity analyses, I establish that, to successfully match the observed rates, it is important to take into account each of these trends. An additional implication of the model is that efficiency increases sharply with a better educated workforce indicating that decreased entrepreneurship might not be as troubling a trend as previously thought.
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    Essays in International Economics
    (2014-07) Uy, Timothy
    This dissertation consists of three essays. The first essay analyzes the effects of fixed costs in generating country pairs that do not trade or do foreign direct investment, and how incorporating such country pairs changes the welfare gains one computes from policy reform. Despite the enormous growth over the past several decades in global trade and investment, most countries still do not trade or invest with one other. Using a recently commissioned dataset, I document that 80% of bilateral trade and FDI relationships are zeros. I construct a model that rationalizes these zeros and allows bilateral relationships to form (aggregate zero-to-one transitions) following policy reform. Exact equilibria do not generically exist in the resulting multidimensional discrete-choice fixed point problem. I develop an algorithm that computes an approximate equilibrium where (1) countries engage in more than 99% of all profitable bilateral relationships available to them, and (2) where 99% of the bilateral relationships they engage in yield positive profits. Relative to models with no aggregate entry or exit, the gains from openness in the model where zeros matter are higher by 30% on average, with the discrepancy larger for countries in the developing world.In the second essay, I study the impact of international trade on the rise of the service economy. Services now constitute the majority of both value added and labor in the developed world, and its share is rising still. Trade in services, however, comes nowhere near that level as a fraction of aggregate trade, with few service providers exporting to foreign destinations. Moreover, while productivity growth in services as a whole has lagged behind the rest of the economy, service exporters are more productive, sell more, and hire more workers than their domestic counterparts. I construct a Heckscher-Ohlin model where firms have heterogeneous productivity levels and show that the asymmetric lowering of trade barriers across sectors can qualitatively account for all these facts. The model predicts that labor in skill-abundant countries should move into services. It also features endogenous selection into export markets, with exporters being more productive, selling more, and making more profits than domestic producers. Furthermore, as barriers to service trade remain high relative to non-services, the positive effect that foreign competition in the model has on sector-level average productivity is weaker, generating slower growth in service productivity. These results are shown to be robust to the introduction of intermediates and capital.In the third essay, I examine the role of debt auctions on quantitative models of sovereign default. Government bonds with default risk are often sold by auction, whether competitive or discriminatory. In standard models of sovereign default, the pricing protocol stipulates the existence of perfectly informed risk-neutral foreign creditors with flat demand curves that price bonds uniformly so they break even in expected value. In contrast, this paper follows the auction literature in assuming that creditors face downward sloping demand curves and uncertainty over the stop-out price at which bonds are sold. The interaction of this auction component with default risk has a significant impact on both the level of government borrowing and probability of default. Further, the auction mechanism matters: if bonds are sold using a competitive auction, it is optimal for lenders to bid their true valuation; in contrast, agents have an incentive to understate their valuation under a discriminatory auction protocol. Understanding the tradeoffs inherent in the choice between competitive and discriminatory bond auctions in the presence of default are particularly pertinent for countries that have historically been vulnerable to sovereign debt crises.
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    Essays in International Economics and Labor Economics
    (2017-08) Viana Costa, Daniela
    The three chapters of this dissertation investigate major puzzles in international economics and labor economics. The first chapter investigates the macroeconomic effects of primary commodities trade flows across countries with different export composition. The second chapter studies labor flows of workers with similar skill-level and across countries with similar income. Lastly, the third chapter evaluates the macroeconomic effects of a health policy in the United States. Chapter 1 analyzes how the production and price volatility of primary commodities account for the co-movement between real GDP and terms of trade. Primary commodity exporter countries face large terms of trade fluctuations, largely driven by primary commodity price shocks and amplified by the relative importance of primary commodities in the countries’ exports. In this chapter, I document that an increase in the price of a primary commodity is usually followed by a decrease in terms of trade, defined as the relative price of imports over exports, and an increase in real GDP in these countries. Meanwhile, countries that do not export primary commodities enjoy more stable terms of trade, and their real GDP is positively correlated with terms of trade. Although the literature on primary commodity exporters has focused on developing countries, I show that this relation is independent of a country’s income level. Since standard models are unable to generate real aggregate fluctuations from price shocks if real GDP is correctly measured, this paper identifies a puzzle. I propose a class of mechanisms that is capable of explaining the heterogeneous impact of terms of trade fluctuations across countries. I show that a possible resolution is to incorporate the presence of idle resources and a production cost externality in the primary commodity producing sector in order to connect terms of trade fluctuations to real GDP fluctuations. When subjected to a primary commodity price shock, the model successfully accounts for the behavior of terms of trade and its relation to real GDP for different export compositions. Chapter 2, joint work with Maria Jose Rodriguez Garcia and Rocio Madera, revisits empirical evidence on migration within the European Union-15, disaggregated by occupation. We find that workers move to countries where their type is relatively more abundant among natives. This is at odds with traditional models of migration. We develop a model with external economies of scale that generates an agglomeration force in high-educated labor. Our main result is that a country that is relatively abundant in highly educated labor force will attract foreign labor of the same type. We argue this type of model is more suitable to analyze migration flows between countries of similar income level. Finally, Chapter 3, joint with Juan Carlos Conesa, Parisa Kamali, Timothy Kehoe, Vegard Nygard, Gajendran Raveendranathan, and Akshar Saxena, develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.
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    Essays in International Economics and Macroeconomics
    (2017-08) Ayres Queiroz da Silva, Joao Luiz
    The three chapters of this dissertation investigate major puzzles in international economics and macroeconomics. Chapter 1 proposes a new measure of knowledge production within corporations and analyzes how the production and flow of knowledge within multinational cor- porations can account for the cross-country correlation in corporate sector GDP fluctuations. Chapter 2 studies how fluctuations in the price of primary commodities can account for fluctua- tions in bilateral real exchange rates between the United States and United Kingdom, Germany, and Japan. Finally, Chapter 3 studies the role of firm entry in accounting for the slow recovery in employment following the World Economic Crisis in 2008–2009.
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    Essays on International Macroeconomics
    (2019-08) Lee, Sora
    This dissertation consists of three chapters. Chapter 1 is a critical survey of the literature on the real exchange rate and welfare. First paper researches on welfare associated with two different productivities and the real exchange rate. The second paper classifies countries by regions and analyzes the effects of the real exchange rate. The emerging Asian countries are more export-intensive, so the real depreciation stimulate their economic growth while other emerging countries grow faster with real appreciation. These results rationalize the different growth patterns in different regions. In Chapter 2, I studied the role of foreign reserves. Some papers have argued that countries accumulate foreign reserves in order to deteriorate terms of trade to increase welfare. On the other hand, the optimal tariff theory argues that tariffs can increase the welfare of a country by improving its terms of trade. This paper provides a plausible explanation for the different foreign reserves policies regarding terms of trade. I build an endogenous growth model of a small open economy with technological spillovers generated from exports. Internalizing the growth effects from these externalities, the government decides whether to accumulate foreign reserves or to borrow from abroad. This paper finds that when the export externalities are large enough, it is optimal to hold positive foreign reserves to achieve faster growth through terms of trade deterioration. However, when the export externalities are small, the government holds negative foreign reserves. In Chapter 3, Jorge Mondragon and I propose a stochastic general equilibrium model of sovereign default with endogenous default risk in order to explain the interest rate behavior in emerging economies. We incorporate two types of shocks to cover foreign and domestic uncertainty. We define GDP and terms of trade shock as the domestic and the foreign uncertainty respectively. The model is able to successfully increase the dispersion of sovereign interest rates when GDP shocks are above the trend. This result seems to suggest that terms of trade is a good candidate to explain the volatility of interest rates in small open economies when they are not under recessions or crises.