2012 Theses Doctoral

Three Essays in Macroeconomics

Chahrour, Ryan Ahmad

In this dissertation, I examine three questions of relevance to macroeconomists and macroeconomic policy makers. Chapter 1 studies how central banks should communicate with the general public about their policies and the state of the economy. Chapter 2 evaluates alternative empirical estimates of the effects of tax changes through the lens of a dynamic-stochastic general equilibrium (DSGE) model. Chapter 3 examines the degree to which international borders segment product markets above and beyond the market segmentation that occurs within countries. Central banks and other public actors often perceive a tradeoff between providing the public with useful information and the risk of overwhelming it with excessive communication. In chapter 1, I model this tension in a heterogeneous-information environment in which an information authority chooses how many signals to provide regarding an aggregate state. Agents respond by choosing how many signals to observe. When agents desire coordination in actions, I show that the number of signals they acquire may decrease in the number released by the authority. Regardless of whether agents and the authority value coordination equally, the optimal quantity of communication is positive, but does not maximize agents' acquisition of information. In contrast to a model without information choice, the authority always prefers to provide more precise signals. Estimating the tax multiplier via structural vector autoregression (SVAR) and the narrative approach delivers significantly different results. The former yields multipliers of about 1, whereas the latter produces much larger multipliers of about 3. The SVAR and narrative approaches differ along two important dimensions: the identification scheme and the reduced-form transmission mechanism. Chapter 2 uses a DSGE-model approach to evaluate the hypothesis that the different tax multipliers stemming from the SVAR and narrative approaches are due to differences in the assumed reduced-form transmission mechanisms. The main finding of the paper is that in the context of the DSGE model employed this hypothesis is rejected. Instead, the observed differences in estimated multipliers are due either to the models failing to identify the same tax shock, or to small-sample uncertainty. In chapter 3, we develop a model of equilibrium price dispersion via customer search and show that it can match well-known empirical facts about international prices despite the fact that markets are equally integrated across and within countries. We then consider the model's implications for trade quantities, and show these statistics are necessary to independently identify the true degree of market segmentation across versus within countries. Moreover, in our model, disaggregated price evidence alone is not sufficient to disentangle the cross-border dispersion induced by barriers to international trade from that induced by different realizations of aggregate variables or cross-country differences in idiosyncratic shock distributions. Using data simulated from the model, we demonstrate some of the difficulties in using popular regression measures of the "border effect" to infer the degree of market segmentation created by the border.