Three essays in international macroeconomics

Abstract

This thesis focuses on three macroeconomic issues in the process of cross-border integration in real and financial markets. The first chapter develops an asymmetric two-country international real business cycle model to analyze the effects of trade and capital liberalization on macroeconomic volatility in emerging markets. In this framework, agents in the emerging market are subject to a constraint a la Kiyotaki on foreign borrowing and the international trade of intermediate inputs is subject to quadratic iceberg costs. The model shows, that in emerging economies, in response to a productivity shock, capital liberalization leads to a worsening of consumption smoothing whereas trade liberalization to an improvement of consumption smoothing. These results are consistent with the empirical evidence provided by Kose, Prasad and Terrones (2003). Then, the second chapter examines the dynamics, the predictors and the costs of current account reversals across diverse de-facto exchange rate regimes in a sample of industrialized economies over the period 1970-2007. This analysis shows that the average patterns of the main macroeconomic variables during the adjustment episodes are not dissimilar across exchange rate systems. Instead, the triggers of current account reversals change across different exchange arrangements. Moreover, this study provides evidence that, against the traditional wisdom, a current account adjustment has a more negative effect on real GDP growth under a more flexible exchange rate regime than under a fixed exchange rate regime. Finally, the third chapter studies the international transmission mechanism of a tradable productivity shock in a two-country two-sector international real business cycle model. In particular, it identifies the conditions under which the predictions of the Balassa-Samuelson theorem hold in a theoretical framework where the real exchange rate is driven both by the movements of the terms of trade and by the deviations of the relative price of non-tradable goods across countries. The model shows that a productivity innovation to the domestic tradable sector always leads to an increase in the relative price of non-tradable goods while the effect on the real exchange rate largely depends on the model parameterization.