Three Essays in Macroeconomics and Monetary Economics

Date
2017
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Abstract
After the 2008 financial crisis, more and more economists have been concerned with the inability of modern macroeconomics to predict the financial and economic crisis. It is considered that the inability is because of assuming a frictionless economic environment, isolated actions of economic agents, exogenous shocks, and the consistency between statements about individual and the ones about the aggregate. Therefore, it is important to ask whether economic frictions play an important role in the overall economy. This thesis investigates different types of economic frictions and monetary aggregation issues to provide a better understanding of their implications for the economy. The first chapter deals with the fiscal theory of the price level. In this paper, we take a first pass at integrating discussion of financial frictions and the fiscal theory of the price level. We argue that the financial friction, which is related to fiscal policy, provides an additional instrument tool to the fiscal authority and an advantage over the monetary authority in choosing the equilibrium. The second chapter investigates the important role of communication friction in the economy. It is shown that the level of economic activity is a nonlinear and time-varying function of aggregate economic fundamentals and sentiment shocks. It is found that communication frictions have nonlinear effects on the variance of aggregate output, meaning that improving the communication does not always reduce the variance of aggregate output. In the third chapter, an econometric framework that very flexibly allows for changes in the coefficients of the monetary asset demand functions is proposed and used. It is found that the monetary asset demand specifications exhibit instability (in terms of large swings in the elasticities of substitution), and that the monetary assets are in general Morishima substitutes with the Morishima elasticities of substitution always being below unity.
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Keywords
Economics, Economics--Theory
Citation
Xu, L. (2017). Three Essays in Macroeconomics and Monetary Economics (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/28442