Date of Award

Spring 2011

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Economics

First Advisor

Jesus Fernandez-Villaverde

Second Advisor

Urban Jermann

Third Advisor

Harold Cole

Abstract

This thesis explores the important link between macroeconomic dynamics and the financial sector. The first essay studies Epstein-Zin preferences, which are found to be able to account for both aggregate macroeconomic dynamics and asset prices. In the first essay, I compare different solution methods for computing dynamic stochastic general equilibrium (DSGE) models with Epstein-Zin preferences and stochastic volatility. I show that perturbation methods are an attractive approach for computing this class of problems. The second essay emphasizes the importance of frictions in the financial market on real economic activities. The model studies the international business cycle co-movements when financial frictions are present. The model can account for the positive and sizable cross-country correlations of output, investment and hours worked in the data.

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