Gu, Jingping (2008-08). Essays in Applied Macroeconomics: Asymmetric Price Adjustment, Exchange Rate and Treatment Effect. Doctoral Dissertation. Thesis uri icon

abstract

  • This dissertation consists of three essays. Chapter II examines the possible asymmetric response of gasoline prices to crude oil price changes using an error correction model with GARCH errors. Recent papers have looked at this issue. Some of these papers estimate a form of error correction model, but none of them accounts for autoregressive heteroskedasticity in estimation and testing for asymmetry and none of them takes the response of crude oil price into consideration. We find that time-varying volatility of gasoline price disturbances is an important feature of the data, and when we allow for asymmetric GARCH errors and investigate the system wide impulse response function, we find evidence of asymmetric adjustment to crude oil price changes in weekly retail gasoline prices Chapter III discusses the relationship between fiscal deficit and exchange rate. Economic theory predicts that fiscal deficits can significantly affect real exchange rate movements, but existing empirical evidence reports only a weak impact of fiscal deficits on exchange rates. Based on US dollar-based real exchange rates in G5 countries and a flexible varying coefficient model, we show that the previously documented weak relationship between fiscal deficits and exchange rates may be the result of additive specifications, and that the relationship is stronger if we allow fiscal deficits to impact real exchange rates non-additively as well as nonlinearly. We find that the speed of exchange rate adjustment toward equilibrium depends on the state of the fiscal deficit; a fiscal contraction in the US can lead to less persistence in the deviation of exchange rates from fundamentals, and faster mean reversion to the equilibrium. Chapter IV proposes a kernel method to deal with the nonparametric regression model with only discrete covariates as regressors. This new approach is based on recently developed least squares cross-validation kernel smoothing method. It can not only automatically smooth the irrelevant variables out of the nonparametric regression model, but also avoid the problem of loss of efficiency related to the traditional nonparametric frequency-based method and the problem of misspecification based on parametric model.
  • This dissertation consists of three essays. Chapter II examines the possible
    asymmetric response of gasoline prices to crude oil price changes using an error
    correction model with GARCH errors. Recent papers have looked at this issue. Some of
    these papers estimate a form of error correction model, but none of them accounts for
    autoregressive heteroskedasticity in estimation and testing for asymmetry and none of
    them takes the response of crude oil price into consideration. We find that time-varying
    volatility of gasoline price disturbances is an important feature of the data, and when we
    allow for asymmetric GARCH errors and investigate the system wide impulse response
    function, we find evidence of asymmetric adjustment to crude oil price changes in
    weekly retail gasoline prices
    Chapter III discusses the relationship between fiscal deficit and exchange rate.
    Economic theory predicts that fiscal deficits can significantly affect real exchange rate
    movements, but existing empirical evidence reports only a weak impact of fiscal deficits
    on exchange rates. Based on US dollar-based real exchange rates in G5 countries and a
    flexible varying coefficient model, we show that the previously documented weak relationship between fiscal deficits and exchange rates may be the result of additive
    specifications, and that the relationship is stronger if we allow fiscal deficits to impact
    real exchange rates non-additively as well as nonlinearly. We find that the speed of
    exchange rate adjustment toward equilibrium depends on the state of the fiscal deficit; a
    fiscal contraction in the US can lead to less persistence in the deviation of exchange rates
    from fundamentals, and faster mean reversion to the equilibrium.
    Chapter IV proposes a kernel method to deal with the nonparametric regression
    model with only discrete covariates as regressors. This new approach is based on
    recently developed least squares cross-validation kernel smoothing method. It can not
    only automatically smooth the irrelevant variables out of the nonparametric regression
    model, but also avoid the problem of loss of efficiency related to the traditional
    nonparametric frequency-based method and the problem of misspecification based on
    parametric model.

publication date

  • August 2008