Three Essays in International Macroeconomics and Macroeconomics.

Abstract

This dissertation consists of three essays studying various issues in international macroeconomics and macroeconomics.

The first essay investigates the dynamics of the relative price of nontradable to tradable goods at business cycle frequencies and finds that it displays an emph{S}-shaped cross correlation structure with GDP. In other words, the relative price tends to be negatively correlated with past GDP and positively correlated with future GDP. Because the emph{S}-shaped cross correlation structure is hard to reconcile with existing international macroeconomic models, this essay introduces heterogeneity in price stickiness to explain the regularity and shows that a model with heterogeneous price stickiness in tradable and nontradable sectors can successfully replicate it. However, introducing heterogeneity does not improve results in the existing literature with regard to real exchange rate puzzles.

The second essay examines the implications of the presence of rule-of-thumb consumers on international business cycles, particularly with respect to international business cycle puzzles. For this purpose, a standard international real business cycle model with rule-of-thumb consumers is considered. The essay's main finding is that independent of restrictions on the types of available assets for international risk sharing, the introduction of rule-of-thumb consumers helps to explain the consumption correlation puzzle. In addition, the effects of introducing rule-of-thumb consumers depend on the specification of the productivity process. Specifically, the effects are more salient when the process is less persistent but more spill-over.

The third essay attempts to explain theoretically the dynamic properties of labor share that recent empirical studies have identified. The essay proposes a theoretical model in which laborers and entrepreneurs can share their income risks via an implicit labor contract and shows that the model can replicate many of the dynamics of labor share, including the `overshooting' property. This result implies that risk-sharing between laborers and entrepreneurs may be one of the primary forces determining the dynamics of labor share at business cycle frequencies and that the risk-sharing mechanism can serve as a building block to model the dynamics of labor share.