Studies of the Causes of Business Cycles, Their Estimation and Transmission

Bibliographic Details
Main Author:	Dey, Jaya
Language:	English
Published:	The Ohio State University / OhioLINK 2010
Subjects:	Economics investment-specific real exchange rate inflation wealth effect
Online Access:	http://rave.ohiolink.edu/etdc/view?acc_num=osu1276789010

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spelling	ndltd-OhioLink-oai-etd.ohiolink.edu-osu12767890102021-08-03T06:00:01Z Studies of the Causes of Business Cycles, Their Estimation and Transmission Dey, Jaya Economics investment-specific real exchange rate inflation wealth effect <p>My dissertation investigates what the main sources of fluctuations in some are ofkey macroeconomic variables and how they propagate in the economy. More importantly, I quantify these shocks by using statistical methods and study their transmission mechanism in both closed and open economy settings.</p><p>The first essay, “Explaining International Business Cycles with Real Frictions andTechnology Shocks: A Bayesian Approach”, uses a Bayesian approach to estimate astandard international real business cycle model augmented with time non-separablepreferences, variable capacity utilization and investment adjustment costs. First, Ifind while most of the output and consumption fluctuations attribute to neutral andworld technology shocks, investment-specific technology (IST) shocks explain the bulkof investment volatility. Second, my estimated model with IST shocks simultaneouslyaccounts for the negative correlation between the real exchange rate and relative consumption and the negative correlation between the terms of trade and relative output.IST shocks act as demand shocks by giving firms an incentive to increase labor andcapacity utilization and households an incentive to increase domestic absorption, thuscausing appreciation of international prices when consumption and output are alsorising. In addition, compared to other real shocks, IST shocks generate high volatilitiesin the relative prices. Third, by using marginal likelihood comparison, I find that the success of the model depends to a large extent on variable capacity utilization;investment adjustment costs play only a minor role. After a positive IST shock,increased capital utilization both induces a stronger response of labor by increasingthe marginal product of labor and generates comovement of consumption and output.</p><p>The second essay, “Monetary Policy and the Wealth Effect”, studies the transmissionof monetary policy shocks under different wealth effects on labor hours. Inour simple sticky price model with no capital, I find that the responses of both realand nominal variables, such as consumption, labor, marginal cost and inflation, arehighly volatile and have very little inertia under preferences which imply a zero wealtheffect on labor hours. Under a zero wealth effect, wage responses are very high, whichfurther causes high volatility in marginal costs and inflation. This result is robustto inclusion of any degree of backward indexation in inflation, wage rigidity, capitalor endogenous capital utilization rate. Furthermore, using a Bayesian approachI estimate a small-scale dynamic stochastic general equilibrium model augmentedwith time non-separable preferences, a sufficiently large number of real and nominalfrictions and structural shocks. First, I find that the estimated time non-separablepreferences imply near-zero wealth effect on labor supply. Second, in our variancedecomposition exercise I find that policy shocks explain the bulk of volatilities invariables, confirming the calibration results. Finally, by using marginal likelihoodcomparison, I find that the data rejects the model with weak wealth effect preferencesin favor of preferences with habit formation which can generate reasonableinertial responses of inflation to a policy shock.</p> 2010-09-14 English text The Ohio State University / OhioLINK http://rave.ohiolink.edu/etdc/view?acc_num=osu1276789010 http://rave.ohiolink.edu/etdc/view?acc_num=osu1276789010 unrestricted This thesis or dissertation is protected by copyright: all rights reserved. It may not be copied or redistributed beyond the terms of applicable copyright laws.
collection	NDLTD
language	English
sources	NDLTD
topic	Economics investment-specific real exchange rate inflation wealth effect
spellingShingle	Economics investment-specific real exchange rate inflation wealth effect Dey, Jaya Studies of the Causes of Business Cycles, Their Estimation and Transmission
author	Dey, Jaya
author_facet	Dey, Jaya
author_sort	Dey, Jaya
title	Studies of the Causes of Business Cycles, Their Estimation and Transmission
title_short	Studies of the Causes of Business Cycles, Their Estimation and Transmission
title_full	Studies of the Causes of Business Cycles, Their Estimation and Transmission
title_fullStr	Studies of the Causes of Business Cycles, Their Estimation and Transmission
title_full_unstemmed	Studies of the Causes of Business Cycles, Their Estimation and Transmission
title_sort	studies of the causes of business cycles, their estimation and transmission
publisher	The Ohio State University / OhioLINK
publishDate	2010
url	http://rave.ohiolink.edu/etdc/view?acc_num=osu1276789010
work_keys_str_mv	AT deyjaya studiesofthecausesofbusinesscyclestheirestimationandtransmission
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Studies of the Causes of Business Cycles, Their Estimation and Transmission

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