BUSINESS CYCLES, FISCAL STABILIZATION AND VERTICAL FOREIGN DIRECT INVESTMENT: ESSAYS IN INTERNATIONAL MACROECONOMICS

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Title: BUSINESS CYCLES, FISCAL STABILIZATION AND VERTICAL FOREIGN DIRECT INVESTMENT: ESSAYS IN INTERNATIONAL MACROECONOMICS
Author: Kersting, Erasmus K.
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 .
URI: http : / /hdl .handle .net /1969 .1 /ETD -TAMU -2009 -05 -525
Date: 2010-01-16

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BUSINESS CYCLES, FISCAL STABILIZATION AND VERTICAL FOREIGN DIRECT INVESTMENT: ESSAYS IN INTERNATIONAL MACROECONOMICS. Available electronically from http : / /hdl .handle .net /1969 .1 /ETD -TAMU -2009 -05 -525 .

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