Essays in Open Economy Macroeconomics

Authors

Ramon Antonio Gonzalez Hernandez, Florida International UniversityFollow

Document Type

Dissertation

Major/Program

Economics

First Advisor's Name

Cem Karayalcin

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Hassan Zahedi

Second Advisor's Committee Title

Committee Member

Third Advisor's Name

Mihaela Pintea

Third Advisor's Committee Title

Committee Member

Fourth Advisor's Name

Peter Thompson

Fourth Advisor's Committee Title

Committee Member

Keywords

monetary policy, policy rules, habit formation, endogenous rate of time preference, international business cycle puzzles, Dominican Republic, international correlations, fear of floating

Date of Defense

4-1-2008

Abstract

Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. The first essay, “ Habit Formation, Adjustments Costs, and International Business Cycle Puzzles” analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. The second essay, “Comparison Utility, Endogenous Time Preference, and Economic Growth,” uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. The last essay, “Monetary Policy under Fear of Floating: Modeling the Dominican Economy,” presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong presence of fear of floating (reluctance to have a flexible exchange rate regime) in the conduct of monetary policy. The dynamic responses of this economy to external shocks that are of interest for monetary policy purposes are analyzed under two alternative interest rate policy rules: One being the standard Taylor rule and another that responds explicitly to deviations of the exchange rate with respect to its long-term trend.

Identifier

FI08081521

Recommended Citation

Gonzalez Hernandez, Ramon Antonio, "Essays in Open Economy Macroeconomics" (2008). FIU Electronic Theses and Dissertations. 56.
https://digitalcommons.fiu.edu/etd/56