Three essays in international monetary economics
Abstract
The dissertation is composed of three essays. The first essay emphasizes the role of information in transmitting various disturbances. By allowing for a rich menu of information sets, we are able to compare the behavior of the economy under alternative regimes. While more information generally improves the stability of the economy, this may not necessarily be true. When the shock is in the foreign interest rate, the ranking of informational regimes becomes counterintuitive. Monetary and exchange market intervention policies can be used to offset the effects on incomplete information. While a number of alternative policy rules can stabilize domestic output against various disturbances, a simple interest-rate rule accompanied by a real money supply target provides full stabilization and solves the information problem simultaneously. The second essay separates the producers of domestic output for the local markets from the exporters of the same commodity. By discriminating between the two sectors we allow for the possibility of price discrimination between commodity prices at home and abroad. While the suppliers for the local markets can act on the basis of current information, the exporters of the same commodity must form rational expectations for the future prices abroad. It is found that a contemporaneous monetary disturbance favors the local suppliers while expected future monetary expansions benefit the exporters of the domestic output. If current monetary shocks are perceived as permanent, there will be no real effects. Finally, the third essay extends the framework used in the second essay to cover the situation in which the supply of foreign imports is less than completely elastic. We notice that the importance of the terms of trade effect on the sectoral outputs diminishes as the supply elasticity of imports falls. In the quota situation, sectoral outputs are completely determined by anticipated and unanticipated movements in the real government spending. However, exchange rate changes either dampened or exacerbated, depending on the parameter values of the model. When monetary policy changes are perceived as permanent, the effects on exchange rates are the same for all values of supply elasticity of imports.
Degree
Ph.D.
Advisors
Carlson, Purdue University.
Subject Area
Economics
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