Empirical Essays in Open Economy Macroeconomics, , This book is comprised of two parts. The first usesdata on Canada.
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- "International investment, economic growth, and stabilization policy: " by Mahesh Surendran
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Title: Three essays on open economy macroeconomics. Citation: Florence : European University Institute, DOI: Abstract: This thesis consists of three papers on open economy macroeconomics.
"International investment, economic growth, and stabilization policy: " by Mahesh Surendran
The first paper investigates the welfare implications of a fiscal transfer rule between members of a monetary union. I build a two-country model where banks are exposed to sovereign risk. I show that the costs of expansionary fiscal policy can outweigh the benefits due to the added pressure on sovereign spreads. This is magnified when the fiscal stance is weak. On the contrary, inter-governmental transfers mitigate the fiscal strain and provide stimulus to the economy. Yet, I find that sound fiscal stances are crucial both for governments to countervail shocks on their own, and also to grant support for the implementation of the transfer scheme.
The second paper lays out an empirical model to compare the propagation of exogenous shocks in a small open economy subject to structural change. As the identification of shocks is time invariant, I am able to investigate the difierences that pertain only to structural change. I estimate the model to Australia and find a regime transition occurring in The responses of domestic variables to the shocks are less exacerbated and adjust quicker after the transition.
Metadata Show full item record. Citation Mann, S. Essays in International Macroeconomics and Finance Doctoral thesis.
Abstract 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.
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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.
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.