Real And Financial Frictions And The Dynamic Properties Of Physical Investment
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Real and Financial Frictions and the Dynamic Properties of Physical Investment
Abstract: This dissertation studies the dynamic properties of physical investment in a general equilibrium economy under various real and financial frictions. The first chapter studies plant-level irreversible investment in general equilibrium. I show that in contrast to previous studies, the irreversibility model fails to generate a smoother aggregate dynamics than a neoclassical benchmark and this conclusion is robust with respect to the level of uncertainty as long as the uncertainty level is time-invariant. This is because the consumption smoothing needs in general equilibrium destroy the value of waiting associated with the irreversibility. However, I find that when the uncertainty level itself fluctuates in the short run, the model generates a stronger incentive for waiting, thereby substantially modifying the basic properties of the neoclassical investment model. The second chapter studies the role of financial market imperfection in the sudden collapse of aggregate investment spending during the Asian financial crises (1997). We approach the problem in two ways: a conventional reduced-form analysis of a panel data of Korean manufacturing firms and an indirect inference to estimate a structural dynamic programming problem of a firm with foreign debts and financial constraints. Both reduced-form evidence and structural parameter estimates imply an important role for finance in investment at the firm level. Counterfactual simulations imply that the effect of foreign denominated debt for investment spending may account for up to 50% of the drop in investment during the crisis period. The third chapter studies the role of sunk initial investment required for export activity in generating endogenously persistent dynamics for trade and real exchange rate. With the sunk entry cost, exporting firms tend to stay in the business even when they make negative operating profit. On the other hand, non-exporters tend to delay entry decision. I find that the trade model based on sunk entry cost has a great potential to generate a more persistent dynamics of trade and real exchange rate. The key mechanism delivering this result is that the marginal cost of increasing the number of exporters is increasing because the productivity of marginal exporters is deteriorating as the economy continues to expand export activity.
The Spanish Economy
This book examines the pattern of growth of the Spanish economy in the last few decades, and studies the causes of its labour productivity, and the special features characterising business cycles in Spain.
Dynamic Macroeconomics
An advanced treatment of modern macroeconomics, presented through a sequence of dynamic equilibrium models, with discussion of the implications for monetary and fiscal policy. This textbook offers an advanced treatment of modern macroeconomics, presented through a sequence of dynamic general equilibrium models based on intertemporal optimization on the part of economic agents. The book treats macroeconomics as applied and policy-oriented general equilibrium analysis, examining a number of models, each of which is suitable for investigating specific issues but may be unsuitable for others. After presenting a brief survey of the evolution of macroeconomics and the key facts about long-run economic growth and aggregate fluctuations, the book introduces the main elements of the intertemporal approach through a series of two-period competitive general equilibrium models—the simplest possible intertemporal models. This sets the stage for the remainder of the book, which presents models of economic growth, aggregate fluctuations, and monetary and fiscal policy. The text focuses on a full analysis of a limited number of key intertemporal models, which are stripped down to essentials so that students can focus on the dynamic properties of the models. Exercises encourage students to try their hands at solving versions of the dynamic models that define modern macroeconomics. Appendixes review the main mathematical techniques needed to analyze optimizing dynamic macroeconomic models. The book is suitable for advanced undergraduate and graduate students who have some knowledge of economic theory and mathematics for economists.