The Macroeconomic Effects of Fiscal Policy in a Small Open Economy under a Flexible Exchange Rate Regime

This licentiate's thesis analyzes the macroeconomic effects of fiscal policy in a small open economy under a flexible exchange rate regime, assuming that the government spends exclusively on domestically produced goods. The motivation for this research comes from the observation that the literature on the new open economy macroeconomics (NOEM) has focused almost exclusively on two-country global models and the analyses of the effects of fiscal policy on small economies are almost completely ignored. This thesis aims at filling in the gap in the NOEM literature and illustrates how the macroeconomic effects of fiscal policy in a small open economy depend on the specification of preferences. The research method is to present two theoretical model that are extensions to the model contained in the Appendix to Obstfeld and Rogoff (1995). The first model analyzes the macroeconomic effects of fiscal policy, making use of a model that exploits the idea of modelling private and government consumption as substitutes in private utility. The model offers intuitive predictions on how the effects of fiscal policy depend on the marginal rate of substitution between private and government consumption. The findings illustrate that the higher the substitutability between private and government consumption, (i) the bigger is the crowding out effect on private consumption (ii) and the smaller is the positive effect on output. The welfare analysis shows that the less fiscal policy decreases welfare the higher is the marginal rate of substitution between private and government consumption. The second model of this thesis studies how the macroeconomic effects of fiscal policy depend on the elasticity of substitution between traded and nontraded goods. This model reveals that this elasticity a key variable to explain the exchange rate, current account and output response to a permanent rise in government spending. Finally, the model demonstrates that temporary changes in government spending are an effective stabilization tool when used wisely and timely in response to undesired fluctuations in output. Undesired fluctuations in output can be perfectly offset by an opposite change in government spending without causing any side-effects.

Studies on the international effects of real shocks

This doctoral thesis addresses the macroeconomic effects of real shocks in open economies in flexible exchange rate regimes. The first study of this thesis analyses the welfare effects of fiscal policy in a small open economy, where private and government consumption are substitutes in terms of private utility. The main findings are as follows: fiscal policy raises output, bringing it closer to its efficient level, but is not welfare-improving even though government spending directly affects private utility. The main reason for this is that the introduction of useful government spending implies a larger crowding-out effect on private consumption, when compared with the `pure waste' case. Utility decreases since one unit of government consumption yields less utility than one unit of private consumption. The second study of this thesis analyses the question of how the macroeconomic effects of fiscal policy in a small open economy depend on optimal intertemporal behaviour. The key result is that the effects of fiscal policy depend on the size of the elasticity of substitution between traded and nontraded goods. In particular, the sign of the current account response to fiscal policy depends on the interplay between the intertemporal elasticity of aggregate consumption and the elasticity of substitution between traded and nontraded goods. The third study analyses the consequences of productive government spending on the international transmission of fiscal policy. A standard result in the New Open Economy Macroeconomics literature is that a fiscal shock depreciates the exchange rate. I demonstrate that the response of the exchange rate depends on the productivity of government spending. If productivity is sufficiently high, a fiscal shock appreciates the exchange rate. It is also shown that the introduction of productive government spending increases both domestic and foreign welfare, when compared with the case where government spending is wasted. The fourth study analyses the question of how the international transmission of technology shocks depends on the specification of nominal rigidities. A growing body of empirical evidence suggests that a positive technology shock leads to a temporary decline in employment. In this study, I demonstrate that the open economy dimension can enhance the ability of sticky price models to account for the evidence. The reasoning is as follows. An improvement in technology appreciates the nominal exchange rate. Under producer-currency pricing, the exchange rate appreciation shifts global demand toward foreign goods away from domestic goods. This causes a temporary decline in domestic employment.

Foreign Capital and Finland : Central government's first period of reliance on international financial markets, 1862-1938

The main objective of the study is to evaluate the Finnish central government s foreign borrowing between the years 1862 and 1938. Most of this period was characterised by deep capital market integration that bears resemblance to the liberal world financial order at the turn of the millennium. The main aim is to analyse the credit risk associated with the state and its determination by evaluating the world financial market centres perception of Finland. By doing this, the study is also expected to provide an additional dimension to Finland s political and economic history by incorporating into the research the assessments of international capital markets regarding Finland during a period that witnessed profound political and economic changes in Finnish society. The evaluation of the credit risk mainly relies on exchange-rate risk free time series of the state s foreign bonds. They have been collected from quotations in the stock exchanges in Helsinki, Hamburg, Paris and London. In addition, it investigates Finland s exposure to short-term debt and Moody s credit ratings assigned to Finland. The study emphasises the importance of the political risk. It suggests that the hey-day of the state s reliance on foreign capital markets took place during last few decades of the 19th century when Finland enjoyed a wide autonomy in the Russian Empire and prudently managed its economy, highlighted in Finland s adherence to the international gold standard. Political confrontations in Finland and, in particular, in Russia and the turbulence of the world financial system prevented the return of this beneficial position again. Through its issuance of foreign bonds the state was able to import substantial amounts of foreign capital, which was sorely needed to foster economic development in Finland. Moreover, the study argues that the state s presence in the western capital markets not only had economic benefits, but it also increased the international awareness of Finland s distinct and separate status in the Russian Empire and later underlined its position as an independent republic.

Stiffer Optical Tweezers through Real-Time Feedback Control

This thesis integrates real-time feedback control into an optical tweezers instrument. The goal is to reduce the variance in the trapped bead s position, -effectively increasing the trap stiffness of the optical tweezers. Trap steering is done with acousto-optic deflectors and control algorithms are implemented with a field-programmable gate array card. When position clamp feedback control is on, the effective trap stiffness increases 12.1-times compared to the stiffness without control. This allows improved spatial control over trapped particles without increasing the trapping laser power.

Power Aware Real Time Scheduling in Constrained Devices

Real-time scheduling algorithms, such as Rate Monotonic and Earliest Deadline First, guarantee that calculations are performed within a pre-defined time. As many real-time systems operate on limited battery power, these algorithms have been enhanced with power-aware properties. In this thesis, 13 power-aware real-time scheduling algorithms for processor, device and system-level use are explored.

Microbial activities in boreal soils: Biodegradation of organic contaminants at low temperature and ammonia oxidation

This thesis deals with the response of biodegradation of selected anthropogenic organic contaminants and natural autochthonous organic matter to low temperature in boreal surface soils. Furthermore, the thesis describes activity, diversity and population size of autotrophic ammonia-oxidizing bacteria (AOB) in a boreal soil used for landfarming of oil-refinery wastes, and presents a new approach, in which the particular AOB were enriched and cultivated in situ from the landfarming soil onto cation exchange membranes. This thesis demonstrates that rhizosphere fraction of natural forest humus soil and agricultural clay loam soil from Helsinki Metropolitan area were capable of degrading of low to moderate concentrations (0.2 50 µg cm-3) of PCP, phenanthrene and 2,4,5-TCP at temperatures realistic to boreal climate (-2.5 to +15 °C). At the low temperatures, the biodegradation of PCP, phenanthrene and 2,4,5-TCP was more effective (Q10-values from 1.6 to 7.6) in the rhizosphere fraction of the forest soil than in the agricultural soil. Q10-values of endogenous soil respiration (carbon dioxide evolution) and selected hydrolytic enzyme activities (acetate-esterase, butyrate-esterase and β-glucosidase) in acid coniferous forest soil were 1.6 to 2.8 at temperatures from -3 to +30 °C. The results indicated that the temperature dependence of decomposition of natural autochthonous soil organic matter in the studied coniferous forest was only moderate. The numbers of AOB in the landfarming (sandy clay loam) soil were determined with quantitative polymerase chain reaction (real-time PCR) and with Most Probable Number (MPN) methods, and potential ammonium oxidation activity was measured with the chlorate inhibition technique. The results indicated presence of large and active AOB populations in the heavily oil-contaminated and urea-fertilised landfarming soil. Assessment of the populations of AOB with denaturing gradient gel electrophoresis (DGGE) profiling and sequence analysis of PCR-amplified 16S rRNA genes showed that Nitrosospira-like AOB in clusters 2 and 3 were predominant in the oily landfarming soil. This observation was supported by fluorescence in situ hybridization (FISH) analysis of the AOB grown on the soil-incubated cation-exchange membranes. The results of this thesis expand the suggested importance of Nitrosospira-like AOB in terrestrial environments to include chronically oil-contaminated soils.

Dual-trap optical tweezers with real-time force clamp control

Single molecule force clamp experiments are widely used to investigate how enzymes, molecular motors, and other molecular mechanisms work. We developed a dual-trap optical tweezers instrument with real-time (200 kHz update rate) force clamp control that can exert 0–100 pN forces on trapped beads. A model for force clamp experiments in the dumbbell-geometry is presented. We observe good agreement between predicted and observed power spectra of bead position and force fluctuations. The model can be used to predict and optimize the dynamics of real-time force clamp optical tweezers instruments. The results from a proof-of-principle experiment in which lambda exonuclease converts a double-stranded DNA tether, held at constant tension, into its single-stranded form, show that the developed instrument is suitable for experiments in single molecule biology.

Combination antiretroviral therapy -associated lipodystrophy : insights into pathogenesis and treatment

Introduction: Combination antiretroviral therapy (cART) has decreased morbidity and mortality of individuals infected with human immunodeficiency virus type 1 (HIV-1). Its use, however, is associated with adverse effects which increase the patients risk of conditions such as diabetes and coronary heart disease. Perhaps the most stigmatizing side effect is lipodystrophy, i.e., the loss of subcutaneous adipose tissue (SAT) in the face, limbs and trunk while fat accumulates intra-abdominally and dorsocervically. The pathogenesis of cART-associated lipodystrophy is obscure. Nucleoside reverse transcriptase inhibitors (NRTI) have been implicated to cause lipoatrophy via mitochondrial toxicity. There is no known effective treatment for cART-associated lipodystrophy during unchanged antiretroviral regimen in humans, but in vitro data have shown uridine to abrogate NRTI-induced toxicity in adipocytes. Aims: To investigate whether i) cART or lipodystrophy associated with its use affect arterial stiffness; ii) lipoatrophic SAT is inflamed compared to non-lipoatrophic SAT; iii) abdominal SAT from patients with compared to those without cART-associated lipoatrophy differs with respect to mitochondrial DNA (mtDNA) content, adipose tissue inflammation and gene expression, and if NRTIs stavudine and zidovudine are associated with different degree of changes; iv) lipoatrophic abdominal SAT differs from preserved dorsocervical SAT with respect to mtDNA content, adipose tissue inflammation and gene expression in patients with cART-associated lipodystrophy and v) whether uridine can revert lipoatrophy and the associated metabolic disturbances in patients on stavudine or zidovudine based cART. Subjects and methods: 64 cART-treated patients with (n=45) and without lipodystrophy/-atrophy (n=19) were compared cross-sectionally. A marker of arterial stiffness, heart rate corrected augmentation index (AgIHR), was measured by pulse wave analysis. Body composition was measured by magnetic resonance imaging and dual-energy X-ray absorptiometry, and liver fat content by proton magnetic resonance spectroscopy. Gene expression and mtDNA content in SAT were assessed by real-time polymerase chain reaction and microarray. Adipose tissue composition and inflammation were assessed by histology and immunohistochemistry. Dorsocervical and abdominal SAT were studied. The efficacy and safety of uridine for the treatment of cART-associated lipoatrophy were evaluated in a randomized, double-blind, placebo-controlled 3-month trial in 20 lipoatrophic cART-treated patients. Results: Duration of antiretroviral treatment and cumulative exposure to NRTIs and protease inhibitors, but not the presence of cART-associated lipodystrophy, predicted AgIHR independent of age and blood pressure. Gene expression of inflammatory markers was increased in SAT of lipodystrophic as compared to non-lipodystrophic patients. Expression of genes involved in adipogenesis, triglyceride synthesis and glucose disposal was lower and of those involved in mitochondrial biogenesis, apoptosis and oxidative stress higher in SAT of patients with than without cART-associated lipoatrophy. Most changes were more pronounced in stavudine-treated than in zidovudine-treated individuals. Lipoatrophic SAT had lower mtDNA than SAT of non-lipoatrophic patients. Expression of inflammatory genes was lower in dorsocervical than in abdominal SAT. Neither depot had characteristics of brown adipose tissue. Despite being spared from lipoatrophy, dorsocervical SAT of lipodystrophic patients had lower mtDNA than the phenotypically similar corresponding depot of non-lipodystrophic patients. The greatest difference in gene expression between dorsocervical and abdominal SAT, irrespective of lipodystrophy status, was in expression of homeobox genes that regulate transcription and regionalization of organs during embryonal development. Uridine increased limb fat and its proportion of total fat, but had no effect on liver fat content and markers of insulin resistance. Conclusions: Long-term cART is associated with increased arterial stiffness and, thus, with higher cardiovascular risk. Lipoatrophic abdominal SAT is characterized by inflammation, apoptosis and mtDNA depletion. As mtDNA is depleted even in non-lipoatrophic dorsocervical SAT, lipoatrophy is unlikely to be caused directly by mtDNA depletion. Preserved dorsocervical SAT of patients with cART-associated lipodystrophy is less inflamed than their lipoatrophic abdominal SAT, and does not resemble brown adipose tissue. The greatest difference in gene expression between dorsocervical and abdominal SAT is in expression of transcriptional regulators, homeobox genes, which might explain the differential susceptibility of these adipose tissue depots to cART-induced toxicity. Uridine is able to increase peripheral SAT in lipoatrophic patients during unchanged cART.