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This thesis provides empirical analyses of the relationship between exchange rate volatility (ERV) and export demand in Nigeria using the Nigeria-United States disaggregated bilateral quarterly export data from 1986Q3 to 2013Q4. Firstly, the study examines the contribution of macroeconomic (such as monetary and real) shocks to exchange rate volatility (ERV) in Nigeria using quarterly data from 1986Q3 to 2013Q4. The examination is to ascertain the determinants of ERV in Nigeria through internally generated volatility (endogenous volatility) in the exchange rate. Secondly, the endogenous volatility is employed to investigate the relationship between ERV and trade using the general equilibrium approach. The study employs the oil and agriculture export model for the trade analysis because Nigeria's net export largely deteriorates from 26.2% in 2012 to -40.1% in 2013, which is a negative indication to economic growth. This study recognizes the role of oil price, interest rate and income in ERV determination. Also, it recognizes the role of price and income in the relationship between ERV and export demand in Nigeria. The BEKK Multivariate Generalized Autoregressive Conditional Heteroscedastic (BEKK-MGARCH) model together with the volatility impulse response functions (VIRFs) are employed for the analysis of exchange rate volatility modeling. While the autoregressive distributed lag (ARDL) model is employed for the sectoral export demand modeling. The results provide strong evidence that previous shocks from interest rate, productivity growth, and oil price significantly influence exchange rate volatility in Nigeria between 1986 and 2013. Also, volatilities from interest rate and productivity growth significantly contribute to ERV while oil price provide mixed results for volatility spillover to ERV in Nigeria. The results from the exchange rate model indicate that exchange rate volatility in Nigeria increased due the shock effects from the interest rate and productivity growth employed in the model. ii From the trade model, the study provides robust evidence that increase in ER volatility reduces the volume of export in the Nigerian oil and agricultural sector between 1986 and 2013. The evidence from this study supports the theoretical model that effect of exchange rate volatility on trade flow arises from the factors that drive ERV. The multiplier analysis of the ARDL techniques shows that the immediate effect of ERV on export demand in Nigeria between 1986 and 2013 has a high magnitude, which gradually dies off. The policy implications of the finding of this thesis are in three-fold. Firstly, this study confirmed that shocks to exchange rate overtime are orchestrated by policy reversal from unstable political regime in Nigeria. The shocks to exchange rate overtime subsequently led to general high volatilities in the exchange rate, interest rate and output growth as well as overall unstable economy. The higher interest rate and output growth shocks and volatilities increase ERV, which in turn, deteriorates trade in oil and agricultural sectors. Thus, this study suggests that policy reversal under political regime shift should be controlled in Nigeria. Secondly, interest rate volatility is found in this study to escalate volatility of exchange rate overtime. Thus, this study suggests that a practical and stable monetary policy that will lower ERV is needed to boost trade in the two productive sectors in Nigeria. This will help to control the volatilities in the economy that is due to monetary volatility as well as real economy volatility. Thirdly, this study finds that exchange rate variation alone cannot explain the full degree of trade imbalances in Nigeria. Thus, exchange rate arrangement is only a part of the needed resolution to trade improvement. The study, therefore, suggests that full resolution to trade development be pursued alongside other policy actions such as monetary policy. The study made the suggestion because this thesis confirms that there is an indirect effect from the monetary factor to trade. Finally, this study concludes that Nigeria political regime and monetary policy should be reviewed and become stable to allow a sustainable and enduring economic growth.

This thesis is a collection of essays where I explore and extend the study of the role of financial frictions for the determination of asset prices, financial stability, and economic resilience. The frictions included in the analysis are individual and aggregate uncertainty, agent heterogeneity, money, liquidity and default. The first essay is an empirical study that motivates my research objectives. This work starts with the exploration of the role of liquidity on asset prices, specifically on sovereign bonds of emerging countries. I present a comprehensive model where I developed a novel methodology for finding the role of liquidity in the determination of asset prices during the financial crisis. In the second essay, illuminated by the empirical findings, I apply and expand the general equilibrium theory of money, default and financial stability. The contributions at the theoretical level are the extension of two-period model with discrete state space to the infinite horizon dynamic stochastic setting, and the inclusion of liquidity restrictions. In the third essay, I further extend this framework, allowing for production technology and endogenous market liquidity. Given the theoretical setting, I have analyzed the responses of financial stability and economic performance variables to real and financial shocks. Finally, in the fourth essay I produce an empirical application of this work. I apply a novel semi-parametric financial stability metric, and evaluate its relevance for the determination of asset prices, in the presence of liquidity restrictions. As a result, this thesis suggest plausible explanations for financial and economic issues that conventional models have not dealt with adequately.

Industrial policy in the form of direct and indirect government subsidy provision to firms in specific sectors of the economy is a common sight in many countries. Some of the most often quoted examples are East Asian economies such as japan and Taiwan. While industrial policy is touted as a possible engine to generate economic growth, empirical validations on the benefits from subsidy provisions have been mixed. It is often argued that a policy of non-intervention by the government may appear to be the optimal policy to pursue. However, this contrasts with the historical observations of regular government subsidy provisions to firms in many countries. This thesis constructs a two-sector non-monetary macroeconomic model with monopolistic competition to examine welfare and other related effects of a subsidy provision in the form of lump sum transfers or as some proportion of a variable cost component while firms in the perfectly competitive sector do not. This analysis is first carried out in an economy where labour supply is assumed to be exogenous and perfectly inelastic. This serves to provide a simple and clear exposition on the effects of a subsidy provision and to serve as a benchmark analysis to build upon. This is subsequently extended by allowing for labour supply to be endogenously determined to examine labour market effects of subsidy policies. The implications of subsidy provisions in the presence of international trade are studied by constructing a small open economy model where the effects of any policy implementation do not affect world prices or income. The principle findings we obtain are that when monopolistically competitive firms receive a cost-reducing subsidy, welfare improvements are always possible regardless of which cost variable the government subsidises. Furthermore, there is always a positive optimal subsidy which raises social welfare. When the supply of labour is endogenous, the corresponding tax imposed on income will always induce an increase in labour supply. Trade is shown not to affect the principle findings: there remains an optimal level of subsidy which is Pareto-improving. A further implication in the open economy context is that the subsidy acts as a form of import-substitution and export-promotion instrument which potentially alters the domestic economy's trade patterns.

The continuous double auction (CDA) has found itself in a state of ubiquity in today's market landscape. Such presence has motivated a vast literature on the double auction, spanning theoretical, experimental and empirical works alike. Despite the century or so of research into the underpinnings of the double auction and its many variations, much is left to discover in terms of convergence and its determinants. This dissertation investigates the driving forces of the continuous double auction institution, as well as mechanisms for equilibrium-achieving trader behavior, all set in simple general equilibrium settings. Chapter 1 presents a model of zero intelligence trading in the continuous double auction, though set in a general equilibrium economy and unconstrained to the point of reaching a lower level of `zero' than prior literature. Much like Gode and Sunder (1993), the model's intent is not to give a prescription for what traders do in the world, but to better understand the driving power and mechanisms underlying the CDA in a more complex environment. To fully understand the implications of the model, the institution and the economic setting, I simulate several variations of the market hundreds of times. Chapter 2 pushes further into the wilderness of bounded rationality, questioning how price accessibility in a CDA impacts trader behavior. Do they respond to orders being posted and traders being made, and if so, how? To investigate, I run a set of laboratory experiments which vary the accessibility of prices in the orderbook and transaction history. I pair the experiment with another general equilibrium adaptation of a classic CDA agent-based model (Gjerstad and Dickhaut (1998)), one which assumes traders perfectly choose orders based on their beliefs on how acceptable prices are. Chapter 3 postulates a trader behavior model which is able to encapsulate the models of Chapter 1 and 2, and also provide one mapping of the intermediate levels of minimal intelligence between them. In addition to holding beliefs on prices, traders also abide by reservations that allow for disequilibrium trade, and select orders imperfectly via logit choice.

This dissertation is devoted to studying the risk management of insurance companies. It focuses on risk management behaviors such as investment, portfolio management, and derivative use. The risk involved in the study includes the risk caused by adverse selection, investment risk, and interest rate risk. It also compares the risk-taking attitude among insurers with different ownership statuses. The first chapter studies competitive equilibria of an insurance market with adverse selection where insurers' investments are risky. It characterizes the incentive-efficient allocations of the economy. Competitive equilibria are not incentive-efficient because of the externality imposed by agents' incentive constraints that cannot be completely internalized in the Walrasian economy. Specifically, the equilibrium allocations achieved in the market can only be ones with restricted subsidization although incentive-efficient allocations feature unrestricted subsidization when the proportion of low-risk insurees is large. Finally, it demonstrates incentive-efficient allocations in the new economy with investment risk can be successfully decentralized in the Walrasian market affiliated with consumption rights that internalize the externality imposed by agents' incentive constraints. The second chapter studies duration-matching behavior by life insurers in response to interest rate movements. Previous literature finds evidence that the duration gap between assets and liabilities is negatively correlated to interest rates, which is interpreted as ex post duration adjustment. It further hypothesizes that value-maximizing life insurers have incentives to make pre-emptive matching in anticipation of future interest rates. It uses the term spread of the yield curve as the indicator of the expected change in interest rates and shows that U.S. life insurers actively shorten the durations of their asset portfolios reacting to an increasing in both the interest rate level and expected future interest rates proxized by the term spread. To identify the causal relation, it exploits the monetary policy shock associated with 2013 taper tantrum in the difference-in-differences analysis. Consistent with the hypotheses, there is a negative impact of the tape tantrum on the asset duration of highly exposed life insurers comparing with insurers with low interest rate risk exposure. The last chapter is derived from the study about duration matching behaviors. It investigates the role that the ownership status of life insurers plays in the attitude of risk-taking. Mutual ownership is of interest because of the dramatic evolution of the mutual market and its large market share. Following previous studies of capital advantage in different ownership types, the paper suggests that mutual insurers are more conservative in taking interest rate risk relative to stock insurers. Evidence from the U.S. life insurance industry shows that U.S. life insurers maintain a smaller duration gap and react more intensively to interest rate risk. After considering different corporate structures, the argument remains consistent in that mutual corporations take less interest rate risk than two types of stock corporations, mutual holding corporations, and stock corporations.

This dissertation examines the role of investors' belief formation in asset valuation. In the first chapter, I document that subjective bond risk premia implied by survey forecasts of future Treasury yields are acyclical at the one-year horizon. This is in stark contrast to large countercyclical variation in objective risk premia fitted from in-sample predictive regressions of future bond excess returns. This difference in risk premia implies a wedge between subjective and objective expectations of future short rates, which I show is predictable by trend and cycle components of macroeconomic forecasts. I show that these empirical findings can be explained with a learning model in which the agent filters latent trend and cycle components of fundamentals in real time, while an econometrician analyzing the data ex-post has full knowledge of the data-generating processes. The model also yields predictions, consistent with the data, on the joint behavior of the unconditional yield curve slope, the cyclicality of short-rate and macroeconomic expectation wedges, and the cyclicality of objective risk premia. My results suggest that equilibrium models of bond risk premia should target acyclical subjective risk premia and expectation formation, rather than ex-post in-sample fitted risk premia from predictive regressions. The second chapter (co-authored with Stefan Nagel) builds on recent evidence that lifetime experience shapes individuals’ macroeconomic expectations and it explores the asset-pricing implications of this evidence for the aggregate US stock market. We study an economy in which a representative agent learns---but with fading memory---about the constant underlying endowment growth rate. The agent downweighs observations in the distant past but is otherwise Bayesian in evaluating uncertainty. The model explains both standard asset pricing facts and investor expectations within a simple and tractable framework, in which subjective belief dynamics are constrained by survey data. In the model, fading memory implies perpetual learning and permanently high subjective uncertainty about long-run growth, but the subjective equity premium is virtually constant. In contrast, an econometrician who knows the true long-run growth will find a high and strongly countercyclical objective equity premium which is predictable. Consistent with this theory, we show empirically that experienced payout growth (an exponentially weighted average of past growth rates) is negatively related to future stock market excess returns, predicts survey expectation errors, and is positively related to aggregate analyst forecasts of long-run earnings growth. In the third chapter, I argue that econometricians find high returns from trading on the profitability anomaly because investors in real time failed to spot profitable firms that are difficult to analyze. I document that the Fama-French three-factor alphas of the profitability anomaly only exist among firms with high information frictions, proxied by young age, high forecast dispersion, high past return volatility, and/or high option-implied volatility. The results are robust to excluding micro-firms and using different measures of profitability. Short-sale constraints, liquidity, and financial distress do not fully account for the alphas. I show that the empirical pattern is consistent with a noisy rational expectations equilibrium model in which investors use profitability as a noisy signal to learn about future firm payoffs.

This dissertation addresses three distinct tax questions. First, we address the identification of deadweight loss from non-salient taxes. Second, we generalize the canonical result that the impact of a tax does not depend on who has the legal responsibility to remit the tax payment. Finally, I extend the Walrasian equilibrium model to include unbounded increasing returns to scale production technology. Taxes create deadweight loss by distorting consumer choice, so to the extent that consumers perceive taxes to be lower than they really are, deadweight loss declines. Deadweight loss is a convex function of perceived taxes, so its aggregate magnitude depends not only on the average tax misperception, but also on its heterogeneity among consumers. Aggregate data cannot reveal this heterogeneity, yet one can infer lower and upper bounds on deadweight loss relying solely on properties of aggregate demand. Sufficiently rich individual-level data permit identification of deadweight loss even with heterogeneous tax misperceptions. Under strong assumptions on the joint distribution of tax salience and preferences, survey data illustrate that tax salience heterogeneity can yield deadweight loss twice as large as one would calculate under the assumption of a homogeneous perceived price. Relaxing these assumptions, even slightly, yields much more destructive results: the unconstrained upper bound of deadweight loss is more than fifty times larger than the lower bound one would compute assuming homogeneous perceptions of price. Conventional wisdom holds that the impact of a sales tax does not depend on whether the buyer or the seller remits the tax to the government. We extend this result to a general setting. Equilibrium non-transfer activity depends only on the total tax liability, regardless of who bears the statutory remittance liability. In a competitive setting, this result applies when all agents must pay each other for sales and purchases. However, changing the remittance obligation may transfer wealth lump-sum, depending on legal production and consumption rights. Thus, the remittance neutrality of taxes is a variation on Coase’s Theorem. A Walrasian equilibrium with production cannot exist when firms have unboundedly increasing returns to scale technology. If any price-taking firm chooses to produce at all, then it could achieve infinite profit by producing an infinite amount. Thus, the difficulty of increasing returns to scale in perfect competition results from firms acting without accounting for input supply constraints.

Abstract: Ethanol has been promoted in Canada as an alternative to fossil fuels in the transportation sector. Future changes in Canada’s emerging bioeconomy have the potential to cross industry boundaries, such as agricultural and forestry, and lead to inadvertent economic outcomes. As biofuel production technology develops, further production could come from first-generation grain-based feedstocks, or second-generation cellulosic feedstocks. This study evaluates potential economic impacts due to renewable fuel standards that double current ethanol production from first-generation ethanol, versus cellulosic ethanol produced from hybrid poplar feedstock in Canada. We also investigate the effect of current legislation restricting hybrid poplar growth on crown forestland. Finally, we consider impacts from increased crop productivity and oil prices on our simulated economic outcomes. Impacts are investigated in a general equilibrium economic framework. Overall, we find that doubling ethanol production in Canada results in price and output changes between 0% and 10%, with percentages generally higher in agricultural sectors than in forestry. Results further suggest that cellulosic ethanol leads to relatively lower inter-industry price and output impacts compared to first-generation ethanol, due to the availability of marginal land for hybrid poplar production. For both first-generation and cellulosic ethanol, estimated impacts to Canadian net exports can be substantial for some agricultural sectors. We find that the use of coarse grains for increased first-generation ethanol production leads to an approximately 21% decrease in coarse grain net exports, while increased production with cellulosic ethanol has a relatively larger impact on ruminant trade, with net exports decreasing between 27 – 34%. Results also indicate that the subsidy support required to double current ethanol is costly, at around USD 3.00/gallon. Sensitivity analysis suggests that a crop productivity increase leads to relatively larger benefits to first-generation ethanol, while a 10% oil price increase can double Canadian ethanol production, even without further government support.

This work exploits the general equilibrium modeling framework to simulate complex systems, an economy and an ecosystem. In an economic application, this work leverages a novel data revision scheme to integrate technological detail on electricity generation and pollution abatement into national accounts data in a traditional economic computed general equilibrium (CGE) model. This integration provides a rich characterization of generation and abatement for multiple fuel sources and pollutants across 72 different generation-abatement technology configurations. Results reveal that the benefits of reductions in oxides of nitrogen and sulfur from a carbon policy in the US electric sector are on the order of $10 bn., which rival the policy's welfare costs and make 12-13% carbon abatement economically justifiable without considering any climate benefits. For ecosystem applications, this work demonstrates how the structure of economic CGE modeling can be adapted to construct a Biological General Equilibrium (BGE) model grounded in the theoretical biology literature. The BGE model contributes a novel synthesis of micro-behavioral, bioenergetic features with macroscopic ecosystem outcomes and empirical food web data. Species respond to prevailing ecosystem scarcity conditions that impinge on their energy budgets driving population outcomes within and across model periods. This adaptive capacity is a critical advance over the commonly-taken phenomenological or first-order parametric approaches. The distinctive design of the BGE model enables numerical examination of how changes in scarcity drives biomass production and consumption in a complex food web. Moreover, the BGE model design can exploit empirical datasets used by extant ecosystem models to offer this level of insight for a wide cast of ecosystems. Monte carlo simulations demonstrate that the BGE framework can produce stable results for the ecosystem robust to a variety of shocks and parameterizations. The BGE model's validity is supported in tests against real-world phenomena within the Aleutian ecosystem - both an invasive species and a harvesting-induced trophic cascade - by mimicking key features of these phenomena. The BGE model's micro-founded dynamics, the stability and robustness of its results, and its validity against real-world phenomena offer a unique and valuable contribution to ecosystem modeling and a way forward for the integrated assessment of human-ecosystem interactions.

Water is essential to human life and activities and river is an importance source of water. This dissertation addresses two problems related to rivers. First is the water quantity allocation between countries which share an international river. International resources such as water are typically subject to conflict as individual countries perceive individual gains from increased use of the resource. This inherent conflict is also reflected in analytical studies which are typically partial equilibrium and hence naturally assume that welfare functions are increasing in the resource allocation. In this setting, the question arises if there are ever circumstances such that it is in the joint self-interest of political entities to share the resource.With a two-country-two-good Ricardian trade model, the conflicts over water naturally stems from a welfare function monotonically increasing in water could be mitigated, since the free trade welfare functions can be non-monotone when a country has absolute disadvantage in production of both goods. The welfare function is applied to a Nash bargaining game to show how it reduces conflicts over water. The results also hold when the number of production factors increases to two and number of countries sharing the river increases to three. This contributes to the literature by combining the general equilibrium trade model in a river sharing context, deriving the welfare functions that can be utilized in a game-theoretic framework of river sharing, and demonstrating the possibility that the welfare functions are not always monotonically increasing in a country's resources. Second is the allocation and efficient usage of river water in an irrigated agricultural region, with an application to the California lower San Joaquin River. The results show that the region is threaten by water salinity problems in times of drought and efficient use of the water could help increase aggregate irrigation benefits. This research incorporates a set of crop-water-salinity agricultural production functions in an integrated hydrologic-economic surface water quality model and is significant in terms of empirical originality.

My dissertation studies the sectoral and regional reallocation of capital and labor for an economy in transition using general equilibrium model framework. The first chapter, ``Capital in Transition: Housing and Sectoral Reallocation in the Long Run'', studies the sectoral allocation of capital between housing and non-residential sectors using a two-sector general equilibrium model in a neoclassical growth environment. Calibrated to both the United States and China, the model can account for both the positive correlation between the share of housing capital and the consumption-output ratio in the United States and the negative correlation between the share of housing capital and the consumption-output ratio in China. The calibration to the Chinese economy implies that the rapid increase in the share of housing capital and the simultaneous decrease in the consumption-output ratio observed in China can be rationalized by a combination of three factors: a high elasticity of substitution between the two sectors, a high capital intensity of production of the housing sector, and a low initial share of housing capital before the Chinese housing market reform. This paper provides a tractable framework to understand the sectoral allocation of capital between housing and non-residential sectors across countries.The second chapter, ``Human Capital Spillover and Housing price'', provides a model framework to study the relationship between the external effect of human capital and housing price growth in the SEZ economy in China. In a two-region model, high wage in the SEZ region reflects high level of human capital, and these jobs are not available to low human capital migrants from the non-SEZ economy. The migrants come to the SEZ economy for two reasons: on the one hand, the SEZ economy is a better place to accumulate human capital and earn a higher wage in the future; on the other hand, the SEZ economy has a better amenities for living. In the baseline model with migration, the share of population that choose to migrate to the SEZ economy is determined by the utility equalization between living in either economy. In the baseline model, the migration occurs all at once at the first period. Further, I extend the baseline model by incorporating the spillover effect of human capital: time invested in human capital accumulation has a higher return in high human capital environment. In this case, the migration to the SEZ economy becomes increasingly attractive as the gap between the human capital leaders and followers increase. By comparing the extended model with the baseline, I capture the significant positive impact of human capital spillover on the increase of housing prices.The third chapter, `'Dynamic Arrow-Debreu Economy for General Equilibrium Analysis'', coauthored with Cheng-Zhong Qin, develops a dynamic Arrow-Debreu abstract economy to more closely capture the timing of moves of Walrasian general equilibrium model. Instead of inducing a pseudo game, the extensive form of the dynamic Arrow-Debreu abstract economy is well defined. As such, various game-theoretic solutions with and without symmetric information can be applied. We show that the set of subgame-perfectequilibrium allocations coincides with the set of Walrasian equilibrium allocations when information is symmetric.The set of perfect Bayesian equilibrium allocations coincides with the set ofrational expectations equilibrium allocations when information is asymmetric. These results are usefulfor analyzing and refining Walrasian and rational expectations equilibrium allocations.

Ongoing debates about the adoption of the agricultural biotechnology in the developing countries and EU have dominated the literature in development economics and biosciences. This dissertation considers some environmental, economic and social consequences of the technology from three perspectives: 1) the impact of the ongoing pest density on the performance of the agricultural biotechnology in India; 2) trade consequences of EU restrictive trade policies towards biotech products; and 3) the adoption decision of the technology in the EU and the developing economies. Agricultural biotechnology appears to be successful in increasing yield and reducing the use of pesticides. However, most studies fail to consider the dynamic effect of the pest population. Pests are getting more resistant to the biotech seeds. I use a stochastic production function to capture the impacts of inputs on the mean of the output and the effect of pest density on the variability of the output. The results show that, due to the presence of new pests, the productivity of the damage control inputs such as biotech seeds and the insecticides decreases. The ban on the agricultural biotechnology products by the European countries has affected trade flows between EU and its trading partners. I use the international-trade-gravity-model to assess the trade impacts of EU policies towards agricultural biotechnology products. The results show trade creation in the Food and Live Animals category. However trade diversion was found in the Beverages and Tobacco and Animal and Vegetable Oils and Fats categories. Using a general equilibrium and comparative statics analyses, I determine the impact of the enforcement of the Intellectual Property Rights, consumers’ preferences and externalities on the production of biotech crops. The results show that efficient production of biotech crops under the influence of these three factors is contingent upon the output elasticity of capital in both biotech and non-biotech productions, total factor productivity in biotech production, and the ratio of the proportions of the biotech and non-biotech products consumed by each consumer. Advisor: Hendrik Van Den Berg

This dissertation consists of three essays studying the effects of collective household decisions on early childhood development from both empirical and theoretical perspectives. The first chapter outlines the dissertation, by presenting the motivations, methods, conclusions, and policy implications for the entire dissertation. Chapter two examines early childhood development using a collective model with children's cognitive production. We jointly estimate the home input demand with children's cognitive production functions based on a simultaneous equations model. Biases are considered that are caused by the non-random selection of time inputs and possible correlations across inputs and outcomes functions. A direct measure of time inputs relying on children's time diaries from the Child Development Supplement of the Panel Study of Income Dynamics (PSID-CDS) has been constructed. We thereby relax the assumption that there is no difference between parental time spent on children and leisure. Our results show that parental time inputs, especially the active time interacting with children's daily activities, have substantial effects on both children's math and reading test scores. The time inputs vary across parents' age, race, and eduction levels. In chapter three, we conduct a standard Blinder-Oaxaca decomposition to evaluate the role of home inputs in the black-white test score gaps based on the empirical model presented in chapter two. Aside from the finding that children's ability accounts for a large proportion of the differences, we find that home inputs can also explain a significant portion of the gap. When the maternal time is equalized at the average levels of white children, the racial differences in children's reading and math test scores can be closed by approximately 30%-50%. The last chapter extends a collective model with household production to the general equilibrium framework. We concentrate on the impacts of a global bargaining power shift within the household on children's cognitive achievement, especially on those who live with single mothers. The model shows that a global bargaining power change in favor of the female may not necessarily be beneficial to the children living with their single mothers. An increase of female's market equilibrium wage rate as a result of reduced labor supply by married women may induce single mothers to work longer hours, spend less time with children, and compensate them with more monetary investment compared with the case when the equilibrium wage rate stays constant.

This dissertation consists of three essays examining the interactions between macroeconomy and the term structure of interest rates. In the first two theoretical essays, I investigate the effects of fiscal policy and monetary policy on the nominal and real yield curves. In the first essay on fiscal policy, bond supply and the government spending shock drive bond risk premia in a production economy where a fraction of the households are constrained to consume their entire after-tax labor income. Ricardian equivalence breaks down in the model, and fiscal policy becomes relevant to the real economy. This friction increases the consumption risk of the marginal pricers, and it results in large term premia on nominal bonds. In the second essay, co-authored with Erica Li and Francisco Palomino, the influence of monetary policy on the real term premia and the inflation risk premia is studied in the New-Keynesian framework with nominal wage and price rigidities. Under rigidities, both the monetary policy shock and the permanent productivity shock generate positive covariances between the marginal utility to consume and real long-term yields, leading to positive real term premia. However, their implications on inflation risk premia are the opposite: policy shocks generate negative inflation risk premia while permanent productivity shocks generate positive inflation risk premia. The final essay, which is empirical, tests the expectations hypothesis of the term structure by examining bond return predictability using fiscal policy variables. Built on the theory provided in the first essay, I regress excess bond returns on government spending shocks and revenue shocks as well as the conditional volatility on the spending shocks. I find evidence against the expectations hypothesis in that fiscal policy shocks have explanatory power on future bond returns. The result is robust after controlling for monetary policy as well as financial variables such as the Cochrane and Piazzesi (2005) ``return-forecasting" factor.

This study explores how macroeconomic questions can be studied in laboratory settings. A novel experimental methodology is proposed and implemented to study how partial and general equilibrium economies respond to stochastic productivity and monetary shocks under various conditions. Following the DSGE approach, subjects interact over numerous periods to converge to a steady state, then are shocked with temporary or permanent shocks. Their responses to the shocks are compared with theoretical impulse responses. Findings indicate that subjects experience considerable difficulty converging to the efficient competitive equilibrium in economies where money is present. There is a high degree of heterogeneity in how individuals react to monetary shocks and form expectations. Elicited expectations are highly adaptive but are converging in the direction of rationality over extensive stationary repetition. We fail to find evidence in both partial and general equilibrium settings that subjects exhibit money illusion.

The objective of this dissertation is to develop a model to examine the concept of a “worldwide” tax burden. The notion is that due to differential mobility of factors developed nations may be passing on a share of their tax burden to less developed countries while effectively indulging in a form of tax competition. This is important for many reasons especially since it may affect the distribution of income between countries, and influence the flow of capital. As globalization increases, “the race to the bottom” in taxation (which implies tax-cutting) suggests that these spillovers should be reduced over time. The traditional view of taxation implies that taxation imposes an excess burden and increasing most types of taxes will increase this burden. But for whom does this burden increase? Are developed countries passing on a burden to locations that are less able to shift the burden forward? If this phenomenon of tax spillovers can be quantified, we can examine the extent and nature of shifting of the tax burden. Using a version of the famous general equilibrium model first developed by Prof Harberger in 1962, we analyze the extent of tax spillovers in the presence of a public input in an open economy setting. We model two different taxes, the Capital Income Tax and a Consumption Tax and two different types of expenditure patterns, a government input and a transfer payment. The dissertation answers the following research questions: • Can the extent of tax spillovers be quantified using a general equilibrium model that is not dependent on functional forms? • Does the extent of spillovers depend on the type of tax used? • Does the extent of spillovers depend on the use to which the taxes are put? • What are the policy implications? We find that the tax cutting economy can gain from cutting a distorting tax only when the expenditure pattern is neutral, while imposing a cost to the rest of the world in terms of sources and uses of GDP. When revenues are used to provide productive public goods; neither country gains from tax cuts that lower inputs.

Although the structure of Thai economy has been transforming from an agricultural economy to an industrialized country (measured by the share of agriculture to GDP), in 2008 nearly 40 % of overall employment was still engaged in the agricultural sector. In addition, most of the poor (57%) were farm operators and farm workers. Since 1960, the outflow of workers from the agricultural sector to non-agricultural sectors has been increasing. A shortage of agricultural labour has resulted in increased use of farm machinery, a trend that seems to be continuing. Hence, Thai agriculture is expected to become more capital-intensive farming than labour-intensive farming. The aim of this study is to explore whether efforts to encourage producers to use agricultural machinery and equipment will significantly improve agricultural productivity, income distribution amongst social groups and macroeconomic performance in Thailand. A 2000 Social Accounting Matrix (SAM) of Thailand was constructed as a data set, and then a 20 production-sector Computable General Equilibrium (CGE) model was developed for the Thai economy. The CGE model is employed to simulate the impact of capital-intensive farming on the Thai economy under two different forces: technological change and free trade. Four simulations were conducted. Simulation 1 increased the in share parameter capital in the agricultural sector by 5%. Simulation 2 is a 5% increase in agricultural capital stock. A removal in import tariffs for agricultural machinery sector forms the basis for Simulation 3. The last simulation (Simulation 4) is the combination of the above three simulations. The results for each simulation are divided into five effects: input, output, price, income and macroeconomic effects. The results of the first two simulations were opposite in terms of the five effects. Simulation 2 accelerated the capital intensification of all agricultural sectors, whereas Simulation 1 led to more capital intensity in some agricultural sectors. The effects of the input reallocation had a simultaneous impact on output in every sector. Simulation 1 led to a fall of almost all outputs in the agricultural sector, whereas there was an increase in agricultural output in Simulation 2. Overall, almost all prices in Simulation 1 increased whereas Simulation 2 resulted in a decrease in agricultural prices but an increase in non-agricultural prices. In terms of domestic income effects, as a result of the decline of the average price of factors in Simulation 1, there was a decrease in factor incomes belonging to households and enterprises. Consequently, government revenue decreased by 0.7%. In contrast, Simulation 2 resulted in an increase in all incomes above. Finally, regarding macroeconomic variables, Simulation 1 had a negative impact on private consumption, government consumption, investment, exports and imports, resulting in Gross Domestic Product (GDP) decreasing by 0.8%. On the other hand, Simulation 2 had a positive impact on those same variables, affecting a 0.4% rise of GDP. The effects of Simulation 3 were very small in everything compared with the first two simulations. The effect of Simulation 4 was mostly dominated by Simulations 1 and 2; the negative results of Simulation 1 were compensated by the positive effects of Simulation 2.

This research employs recently developed econometric techniques to extend the literature on open space as well as present one of the first micro-level analyses of housing supply. To estimate horizontal sorting models for housing demand and housing supply, a new database consisting of over 460,000 residential transactions spanning 1990 through 2006 as well as detailed land use data identifying nine types of open space is obtained for the seven county Twin Cities metropolitan area in east-central Minnesota. The decision to estimate a horizontal sorting model allows the recovery of preferences for local public goods that vary across observable attributes of both households and builders. Several policy implications arising from the estimation results are that: (i) potential development of open space reduces the amenity value open space provides to households, (ii) different types of open space are associated with very different marginal willingness to pay measures indicating the importance of treating open space as a heterogeneous good, (iii) estimation of heterogeneous preferences shows that both households and builders have heterogeneous preferences and accounting for that heterogeneity provides important information to policymakers, and (iv) policies restricting the amount of developable land can influence the location of the supply of new housing by builders. The use of a horizontal sorting model to estimate both households' demand for housing and builders' supply of new housing allows analysis of not only marginal willingness to pay measures for local public goods, but also willingness to pay measures associated with non-marginal policy counterfactuals. Integrating both the demand and supply sides of the housing market, I estimate general equilibrium welfare measures where both households and builders adjust their housing decisions in response to policy counterfactuals. To clear the market, I adjust the price of housing in order to remove excess demand and excess supply using an iterative numerical technique. I find that significant differences exist between partial and general equilibrium welfare measures and show that incorporating builder supply responses to policy counterfactuals results in potentially large welfare differences compared with both partial equilibrium measures and general equilibrium measures assuming an exogenous supply of housing.

The first essay1 analyzes the general equilibrium effects of school competition in a voucher system when there are peer group effects, public schools are not profit maximizers and private schools behave competitively. The equilibrium is characterized by: (i) sorting of students by school type, and (ii) ambiguous effect of competition on aggregate performance. Exploiting the across market variation we estimate the effect of competition on educational achievement and sorting using Chilean data. Our results suggest that competition is associated with more sorting but it has a positive but moderate effect on aggregate test scores. Our estimations suggest that public school students, in places with more competition, are not worse off (in terms of educational achievement.) In the second essay I analyze the dynamics of private school formation (entry and exit) in Chile. Among the results I find evidence that suggests that: (i) the market is indeed dynamic, private schools respond to local market conditions such as public school quality, (ii) private and public schools seem to have different objectives functions, mainly reflected in their exit decision, where both types respond very differently to the market signals, and (iii) horizontal differentiation, although missing in academic and policy discussions, matters to explain what happens in this market. The last essay is a theoretical model of school competition that takes into account specificities of this market, such as the peer group effect, nonprofit behavior for public schools, economies of scale and entry costs. Surprisingly, these specificities have important implications for the equilibrium and its properties. In particular, we find that the post-entry profit level is nonlinear in N (the number of private schools) what might generate multiple equilibria and coordination problems in the first stage, different from previous coordination problems discussed in the industrial organization entry literature. This might explain why in Chile we observe a lot of heterogeneity in private school competition in small markets and why we observe a high number of private schools failing right after entry. 1Coauthored with Juan Pablo Valenzuela.

Education plays a central role in public finance in the United States, with public expenditures on public primary and secondary schooling equaling about 3.5% of the gross domestic product. Currently, important education policy debates include whether school choice should be expanded, whether training requirements for public school teachers should be altered, and whether public school expenditure levels should be locally determined. This dissertation empirically investigates issues surrounding these three debates, with particular emphasis on general equilibrium effects, (i.e., the impact of policies after agents respond to changes in prices and to other agents' behavior). The first chapter finds that the adoption of a school choice program can influence local property tax bases, with potentially important feedback effects for public school district revenues. The second chapter examines the role of entry costs on the fraction of graduates of selective colleges who become public school teachers. The presence of undergraduate teacher certification programs at certain selective colleges increases rates of entry into teaching by providing easier pathways to teaching careers. Finally, the third chapter finds that, when there is asymmetric information that cannot be easily shared, individuals may factor in the composition of the electorate when making their voting decisions. This result has important implications for the effects of demographic changes on local public expenditure levels.

Chapter 1 introduces some of the issues which are addressed in the other chapters of this dissertation. These topics include: (1) the general equilibrium incentives in the provision of public education, (2) human capital production functions in economic modeling, (3) how public education spending may impact income inequality -- both positively and negatively, (4) the effect on public education spending of changes in the college wage premium, and (5) the overall efficiency of government-supplied capital. Chapter 2 develops a public education system in which voters face general equilibrium incentives to pay taxes for education. Middle-aged voters can increase their returns to saving by increasing the aggregate amount of human capital in the economy. I find that if students differ by their ability to increase their human capital levels through schooling, then the public education policy will invest more education funds in more productive students; this perpetuates income inequality. Also, the greater the discount rate for consumption and the elasticity of education funds in the human capital production function, the more likely it is that a public system provides greater growth in the steady state than a private system. Chapter 3 studies the allocation of government spending between general tuition subsidies for college students and need-based aid which is directed solely towards students from low-income households. The way to maximize the number of students may be to provide some need-based aid. I find that government provides more aid directed to low-income students if need-based tuition subsidies are provided rather than student loan subsidies. I also look at the effects of changes in parameters, such as the cost of education and the college wage premium, on the policies. Chapter 4 investigates the returns to aggregate factors of production when labor is disaggregated by education level. I find that a model in which the error term is assumed to be state-wise heteroscedastic and autocorrelated does a better job of approximating the pattern of wages for the different education groups than other models (pooled OLS or random and fixed effects). In addition, this model suggests a significant positive elasticity for public capital.