Three Essays on International Macroeconomics

Abstract

This thesis is comprised of three essays on international macroeconomics. The first chapter examines empirically both the long-run and short-run impacts of the exchange rate volatility on manufacturing sector and bilateral exports during the sample period of 1999-2010 in five major ASEAN countries. A set of autoregressive distributed lag bounds tests are applied to examine the long-run level relationships among the variables, and long-run impacts of exchange rate volatility on exports. Seemingly unrelated regressions models with error corrections are estimated to capture shortrun dynamics. Significant and negative impacts of exchange rate volatility on exports are widely observed, which suggests risk averse exporters shift resources away from exporting to reduce exposure to higher exchange rate risk. The second chapter employs the economic policy uncertainty index (EPU) developed by Baker et al. (2013) to empirically examine its effect on economic growth across both advanced and emerging countries over 1985-2006. In addition, this study aims to identify the channels through which the EPU affects economic growth. A series of Kiviet’s estimators are utilized for this dynamic panel data analysis. The results confirm that higher economic policy uncertainty reduces economic growth and the three channels of economic growth, physical capital accumulation, human capital accumulation, and total factor productivity (TFP) for both country groups. The third chapter develops a set of two-country open economy dynamic stochastic general equilibrium models to explore cross-country correlations among real variables. The third chapter develops a set of two-country open economy dynamic stochastic general equilibrium models to explore cross-country correlations among real variables. One contribution to the literature is to differentiate skilled and unskilled labour and to allow capital-skill complementarity in a cross-country setup. The other contribution is to seek features of modeling that affect international comovements among real variables. I find that these models are capable of resolving the existing international comovement puzzles even without the additive habit formations and retaining the key statistical characteristics of real variables in accordance to the data. Quantitative results indicate that spillovers between monetary policies and TFPs, and price stickiness are the three major factors that drive the international comovements among real variables. This finding overturns the conclusion by Dmitriev and Krznar (2012) that internal habit formation is the main driver for international comovements.