Essays on International Economics

Abstract

This dissertation consists of three chapters, each of which addresses a different issue in the strand of literature on international macroeconomics, broadly defined. The first chapter shows that surprise movements in stock market volatility can negatively affect our forecasts of future output across countries. The chapter studies the time series and cross-sectional responses of output to variation in stock market volatility across 27 countries over 40 years, controlling for a number of country-specific characteristics. The second chapter presents a small open economy model with discrete choice state-dependent pricing where individual firms are subject to both idiosyncratic productivity and government spending shocks that may drive the nominal interest rate to the zero lower bound endogenously. Two patterns emerge. First, high fiscal volatility drives the economy to the lower bound more often, thus further limiting the effects of expansionary monetary policy. Second, output response to a random shock to government spending is transient because firms can respond promptly to aggregate shocks to the economy. Empirically, the model captures salient features of the Japanese economy from 1975 to 2006 along multiple dimensions. The third chapter, joint with Siraj Bawa, shows that increases in corporate income taxes can lead to asymmetric welfare benefits across agents who hold assets and those who do not. Specifically, while building on some elements of the current theoretical literature, our model implies that corporate tax burdens tend to fall more heavily on workers, a result that is congruent with the empirical findings. Furthermore, investors do suffer from increases in corporate taxes, but such negative effect is considerably less persistent than that of the workers.