Date of Award

2015

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Economics

First Advisor

Joao F. Gomes

Abstract

This dissertation consists of two essays on macroeconomics and finance. Chapter 1 develops a novel theory of "bubble" dynamics in a tractable noisy rational expectations model with endogenous capital flows. I show that the unique linear partially revealing rational expectations equilibrium features a dramatic non-fundamental rise and fall of asset prices driven by speculation. Specifically, two layers of uncertainty---uncertainty about the fundamental value and uncertainty regarding the probability with which the fundamental value is fully revealed in each period, generate the hump shape in prices; gradual capital inflows lead to dramatic price movements and also trading frenzies. Simulation results show that the model equilibrium can produce various realistic bubble episodes. In Chapter 2, I investigate the role of business deregulation and financial reform in both stock and credit market in explaining the rapid growth of China in the past twenty years. To do so, I build a dynamic general equilibrium growth model with heterogeneous consumers and firms, and I show that structural reforms that facilitated business formation and growth lead to a significant increase in the aggregate output. The reason is resource reallocation resulting from stronger market competition, in particular caused by a massive influx of new firms. Quantitative results using firm-level data find a sizable effect of these reforms, especially through the extensive margin, and counterfactual experiments show that different policies aiming to promote entry and post-entry growth have very distinct impacts on the economic performance.

Share

COinS