Essays in open economy macroeconomics

Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. ^ The first essay, “ Habit Formation, Adjustments Costs, and International Business Cycle Puzzles” analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. ^ The second essay, “Comparison Utility, Endogenous Time Preference, and Economic Growth,” uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. ^ The last essay, “Monetary Policy under Fear of Floating: Modeling the Dominican Economy,” presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong presence of fear of floating (reluctance to have a flexible exchange rate regime) in the conduct of monetary policy. The dynamic responses of this economy to external shocks that are of interest for monetary policy purposes are analyzed under two alternative interest rate policy rules: One being the standard Taylor rule and another that responds explicitly to deviations of the exchange rate with respect to its long-term trend. ^

Essays in Open Economy Macroeconomics

Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. The first essay, “ Habit Formation, Adjustments Costs, and International Business Cycle Puzzles” analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. The second essay, “Comparison Utility, Endogenous Time Preference, and Economic Growth,” uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. The last essay, “Monetary Policy under Fear of Floating: Modeling the Dominican Economy,” presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong presence of fear of floating (reluctance to have a flexible exchange rate regime) in the conduct of monetary policy. The dynamic responses of this economy to external shocks that are of interest for monetary policy purposes are analyzed under two alternative interest rate policy rules: One being the standard Taylor rule and another that responds explicitly to deviations of the exchange rate with respect to its long-term trend.

Three essays on the economics of defense contracting, output and income inequality

This dissertation analyzes both the economics of the defense contracting process and the impact of total dollar obligations on the economies of U.S. states. Using various econometric techniques, I will estimate relationships across individual contracts, state level output, and income inequality. I will achieve this primarily through the use of a dataset on individual contract obligations. ^ The first essay will catalog the distribution of contracts and isolate aspects of the process that contribute to contract dollar obligations. Accordingly, this study describes several characteristics about individual defense contracts, from 1966-2006: (i) the distribution of contract dollar obligations is extremely rightward skewed, (ii) contracts are unevenly distributed in a geographic sense across the United States, (iii) increased duration of a contract by 10 percent is associated with an increase in costs by 4 percent, (iv) competition does not seem to affect dollar obligations in a substantial way, (v) contract pre-payment financing increases the obligation of contracts from anywhere from 62 to 380 percent over non-financed contracts. ^ The second essay will turn to an aggregate focus, and look the impact of defense spending on state economic output. The analysis in chapter two attempts to estimate the state level fiscal multiplier, deploying Difference-in-Differences estimation as an attempt to filter out potential endogeneity bias. Interstate variation in procurement spending facilitates utilization of a natural experiment scenario, focusing on the spike in relative spending in 1982. The state level relative multiplier estimate here is 1.19, and captures the short run, impact effect of the 1982 spending spike. ^ Finally I will look at the relationship between defense contracting and income inequality. Military spending has typically been observed to have a negative relationship with income inequality. The third chapter examines the existence of this relationship, combining data on defense procurement with data on income inequality at the state level, in a longitudinal analysis across the United States. While the estimates do not suggest a significant relationship exists for the income share of the top ten percent of households, there is a significant positive relationship for the income share of top one percent households for an increase in defense procurement.^

Three Essays on the Economics of Defense Contracting, Output and Income Inequality

This dissertation analyzes both the economics of the defense contracting process and the impact of total dollar obligations on the economies of U.S. states. Using various econometric techniques, I will estimate relationships across individual contracts, state level output, and income inequality. I will achieve this primarily through the use of a dataset on individual contract obligations. The first essay will catalog the distribution of contracts and isolate aspects of the process that contribute to contract dollar obligations. Accordingly, this study describes several characteristics about individual defense contracts, from 1966-2006: (i) the distribution of contract dollar obligations is extremely rightward skewed, (ii) contracts are unevenly distributed in a geographic sense across the United States, (iii) increased duration of a contract by 10 percent is associated with an increase in costs by 4 percent, (iv) competition does not seem to affect dollar obligations in a substantial way, (v) contract pre-payment financing increases the obligation of contracts from anywhere from 62 to 380 percent over non-financed contracts. The second essay will turn to an aggregate focus, and look the impact of defense spending on state economic output. The analysis in chapter two attempts to estimate the state level fiscal multiplier, deploying Difference-in-Differences estimation as an attempt to filter out potential endogeneity bias. Interstate variation in procurement spending facilitates utilization of a natural experiment scenario, focusing on the spike in relative spending in 1982. The state level relative multiplier estimate here is 1.19, and captures the short run, impact effect of the 1982 spending spike. Finally I will look at the relationship between defense contracting and income inequality. Military spending has typically been observed to have a negative relationship with income inequality. The third chapter examines the existence of this relationship, combining data on defense procurement with data on income inequality at the state level, in a longitudinal analysis across the United States. While the estimates do not suggest a significant relationship exists for the income share of the top ten percent of households, there is a significant positive relationship for the income share of top one percent households for an increase in defense procurement.

A multi-scale assessment of physiological processes in arctic tundra plants under natural and simulated climate change scenarios

Climate warming is predicted to cause an increase in the growing season by as much as 30% for regions of the arctic tundra. This will have a significant effect on the physiological activity of the vascular plant species and the ecosystem as a whole. The need to understand the possible physiological change within this ecosystem is confounded by the fact that research in this extreme environment has been limited to periods when conditions are most favorable, mid June–mid August. This study attempted to develop the most comprehensive understanding to date of the physiological activity of seven tundra plant species in the Alaskan Arctic under natural and lengthened growing season conditions. Four interrelated lines of research, scaling from cellular signals to ecosystem processes, set the foundation for this study. ^ I established an experiment looking at the physiological response of arctic sedges to soil temperature stress with emphasis on the role of the hormone abscisic acid (ABA). A manipulation was also developed where the growing season was lengthened and soils were warmed in an attempt to determine the maximum physiological capacity of these seven vascular species. Additionally, the physiological capacities of four evergreens were tested in the subnivean environment along with the potential role anthocyanins play in their activity. The measurements were scaled up to determine the physiological role of these evergreens in maintaining ecosystem carbon fluxes. ^ These studies determined that soil temperature differentials significantly affect vascular plant physiology. ABA appears to be a physiological modifier that limits stomatal processes when root temperatures are low. Photosynthetic capacity was limited by internal plant physiological mechanisms in the face of a lengthened growing season. Therefore shifts in ecosystem carbon dynamics are driven by changes in species composition and biomass production on a per/unit area basis. These studies also found that changes in soil temperatures will have a greater effect of physiological processes than would the same magnitude of change in air temperature. The subnivean environment exhibits conditions that are favorable for photosynthetic activity in evergreen species. These measurements when scaled to the ecosystem have a significant role in limiting the system's carbon source capacity. ^

Natural organic matter and colloid-facilitated arsenic transport and transformation in porous soil media

Prediction of arsenic transport and transformation in soil environment requires understanding the transport mechanisms and proper estimation of arsenic partitioning tong all three phases in soil/aquifer systems: mobile colloids, mobile soil solution, and immobile soil solids. The primary purpose of this research is to study natural dissolved organic matter (DOM)/colloid-facilitated transport of arsenic and understand the role of soil derived carriers in the transport and transformation of both inorganic and organoarsenicals in soils. ^ DOM/colloid facilitated arsenic transport and transformation in porous soil media were investigated using a set of experimental approaches including batch experiment, equilibrium membrane dialysis experiment and column experiment. Soil batch experiment was applied to investigate arsenic adsorption on a variety of soils with different characteristics; Equilibrium membrane dialysis was employed to determine the 'free' and 'colloid-bound/complexed' arsenic in water extracts of chosen soils; Column experiments were also set up in the laboratory to simulate arsenic transport and transformation through golf course soils in the presence and absence of soil-derived dissolved substances. ^ The experimental results revealed that organic matter amendments effectively reduced soil arsenic adsorption. The majority of arsenic present in the soil extracts was associated with small substances of molecular weight (MW) between 500 and 3,500 Da, Only a small fraction of arsenic was associated with higher MW substances (MW > 3,500 Da), which was operationally defined as colloidal part in this study. The association of arsenic and DOM in the soil extracts strongly affected arsenic bioavailability, arsenic transport and transformation in soils. The results of column experiments revealed arsenic complicated behavior with various processes occurring in soils studied, including: soil arsenic' adsorption, facilitated arsenic transportation by dissolved substances presented in soil extracts and microorganisms involved arsenic species transformation. ^ Soil organic matter amendments effectively reduce soil arsenic adsorption capability either by scavenging 'soil arsenic adsorption sites or by interactions between arsenic species and dissolved organic chemicals in soil solution. Close attention must be paid for facilitated arsenic transport by dissolved substances presented in soil solution and microorganisms involved arsenic species transformation in arsenic-contaminated soils.^