Kersting, Erasmus K. (2009-05). BUSINESS CYCLES, FISCAL STABILIZATION AND VERTICAL FOREIGN DIRECT INVESTMENT: ESSAYS IN INTERNATIONAL MACROECONOMICS. Doctoral Dissertation. Thesis uri icon

abstract

  • 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.
  • 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.

publication date

  • May 2009