Essays in International Macroeconomics

Abstract

This dissertation aims at continuing the theoretical and empirical analysis in international macroeconomics with an emphasis on improving the quantitative performance of New Open Economy Macroeconomic models. Chapter 1 investigates empirically and theoretically how international financial shocks propagate into a small open and emerging economy of Latin America. A subset of structural parameters is estimated by matching empirical predictions gained from a vector-autoregressive analysis to the corresponding theoretical impulse responses. Chapter 2 reassesses a two-country version of the New Open Economy macroeconomic model in its ability to explain the US current account and exchange rate movements. Additional insights are gained regarding estimates of deep parameters that are controversial in the theoretical literature, obtained by applying the maximum likelihood procedure. Chapter 3 examines the trade balance implications of exchange rate movements for transition economies based on estimated import and export elasticities with respect to income and an international relative price. Trade elasticities with respect to international relative prices aim at providing further guidance on one of critical structural parameter in New Open Economy Macroeconomics, namely on the elasticity of substitution between home and foreign goods, which crucially affects international transmission of macroeconomic disturbances.