Three Essays on the Study of Dynamic Macroeconomic Issues

Abstract

This dissertation collects three essays on the topic of Dynamic macroeconomic issues, offering in-depth analyses and novel insights into different aspects of macroeconomic dynamics. The first essay delves into the shock-dependent exchange rate pass-through in a small open economy with significant foreign dependence, focusing on South Korea. Utilizing a Bayesian structural vector autoregression model with zero and sign restrictions, the study uncovers that the impact of exchange rate fluctuations on import and consumer prices in Korea varies according to the type of underlying shocks. Notably, exchange rate fluctuations caused by the exchange rate and monetary policy shocks exert a more pronounced effect on prices compared to other types of shocks. This essay extends the analysis to compare the degree of price impact of exchange rate fluctuations caused by different shocks in Korea, the UK, and Japan. In addition, we use this framework to explain the time variations in exchange rate pass-through in Korea, providing vital insights for policymakers to forecast inflation and maintain economic stability effectively. The second essay investigates the pass-through effects of CNY exchange rate fluctuations in prices and monetary policy in China using a Time-Varying Parameter Vector Autoregression model (TVP-VAR) with stochastic volatility. The research reveals that the pass-through effects exhibit distinct time-varying characteristics. These effects are significantly influenced by the economic conditions of the corresponding periods. The study finds an incomplete pass-through of the CNY exchange rate to prices and a diminishing influence along the supply chain. Changes in inflation rates and fluctuations in the economic cycle led to large fluctuations in the pass-through effect of changes in the CNY exchange rate. Additionally, the COVID-19 pandemic's economic downturn showcased unique impacts on these pass-through effects, differentiating from traditional economic cycles. The third essay re-examines the empirical results on news shocks to total factor productivity (TFP) by identifying technological diffusion news that produces an S-shaped response of TFP. By revisiting Sims (2016), this analysis shows that Barsky and Sims’ (2011) result that TFP rises immediately following a favorable news shock, which is interpreted as a failure to identify diffusion news, is sensitive; even within Barsky and Sims’ identification framework, the identified news shock is found to produce an S-shaped response of TFP, as seen in Beaudry and Portier (2006). Furthermore, this essay shows that VAR information content and measurement errors can play an important role in identifying technological diffusion news. We document that stock prices convey more valuable information about diffusion news than consumer confidence and that when the identification of news shocks is less affected by measurement error shocks to TFP, the identified news shock is likely to capture diffusion news.