Essays in Macroeconomic Dynamics Open Access

Abstract

This dissertation consists of three chapters in macroeconomic dynamics. In the first chapter, I provide a microfoundation for the domestic financial dollarization in many emerging economies. Dollarization is modeled as the currency denomination choice of domestic households' saving and experts' borrowing in a small economy with financial constraints and downward wage rigidity. The competitive equilibrium allocation is constrained inefficient due to a pecuniary externality and imperfect financial market. The government allows dollarization to alleviate the dilemma between achieving domestic risk-sharing and lifting nominal rigidity to implement constrained efficient allocation. This chapter describes the optimal policy choice of dollarization and state-contingent exchange rates.  

The second chapter studies the intergenerational wealth transfer induced by government housing market intervention. Through a simplified over-lapping generation model, this chapter finds government can achieve optimal intergenerational transfer via housing price subsidy and purchase rationing. With a quantitative model calibrated to match aggregate and cross-sectional empirical moments, this chapter evaluates the welfare impact of the housing market reform in China on the initial old generation.

The third chapter studies the terms-of-trade management of a small open economy with defaultable external debt. It extends the consumption goods space of the sovereign default model and endogenizes the terms of trade by introducing a foreign demand. The model features the interaction of terms-of-trade movement with external borrowing and sovereign default. The paper shows competitive equilibrium is constraint inefficient. A quantitative analysis shows that the government committing to a zero tariff rate is more credible and borrows more external debt with a lower interest rate in the equilibrium than the one freely setting tariff. 

Table of Contents

1 Financial Dollarization, Exchange Rate, and Macroprudential Policy 1 

1.1 Introduction.................................... 2 

1.2 Model ....................................... 3 

1.2.1 The Nominal Economy with Non-state Contingent Claims . . . . . . 4 

1.2.2 The Real Economy with State-contingent Claims . . . . . . . . . . . 7 

1.2.3 Implementation of the Constraint Ecient Allocation . . . . . . . . . 10 

1.3 A Simple Case................................... 12 

1.4 Conclusion..................................... 14

2 Housing Market Policy and Intergenerational Wealth Transfer1 15 

2.1 Introduction.................................... 16

2.2 A Simple Model.................................. 18 

2.2.1 The Planner’sSolution.......................... 19 

2.2.2 Decentralization.............................. 21 

2.2.3 Second-best Ramsey Solution ...................... 27 

2.3 The Full-Blown Model .............................. 29 

2.3.1 Households………………………….. 29 

2.3.2 The Housing Reform.............................. 31 

2.3.3 Households’ Decision ........................... 33 

2.3.4 Prereform Steady State.......................... 38 

2.3.5 Production Sectors ............................ 41 

2.3.6 Rental Sector ............................... 42 

2.3.7 The Government................................ 42 

2.3.8 Equilibrium ................................ 43 

2.4 Main Results ................................... 44 

2.4.1 Calibration ................................ 44 

2.4.2 Welfare measures ............................. 44 

2.5 Conclusion..................................... 50 

3 Terms-of-Trade and Sovereign Debt Crisis 51 

3.1 Introduction.................................... 52

3.2 The Model..................................... 55 

3.2.1 Households ................................ 56 

3.2.2 The Government ............................. 57 

3.2.3 The Foreign Lender............................ 58 

3.2.4 Competitive Equilibrium......................... 58 

3.2.5 Social Planner’s Problem......................... 62

3.3 The Optimal Policies ............................... 67 

3.3.1 The Optimal Capital Control ...................... 69 

3.3.2 The Optimal Policy Mix ......................... 70

3.4 Quantitative Analysis............................... 71 

3.4.1 Calibration ................................ 71 

3.4.2 External Debt Distribution........................ 73 

3.4.3 Social Welfare............................... 74 

3.4.4 Default Episode.............................. 77 

3.4.5 Optimal Tax Rate ............................ 78 

3.5 Conclusion..................................... 79

Appendix A Chapter 1 87 

A.0.1 Proofs of Propositions and Lemmas................... 87 

Appendix B Chapter 2 90 

B.0.1 Proofs of Propositions and Lemmas................... 90 

B.0.2 Algorithm................................. 91 

Bibliography 95 

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School	Laney Graduate School
Department	Economics
Degree	Ph.D.
Submission	Dissertation
Language	English
Research Field	Economics, General
Keyword	optimal policy emerging market international finance
Committee Chair / Thesis Advisor	Yue, Zhanwei, Emory University
Committee Members	Cho, In-Koo, Emory University Wei, Bin, Federal Reserve Bank of Atlanta Chen, Kaiji, Emory University

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