Peng, Qiusha
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Publication Essays on Macroeconomics and Finance(2015-01-01) Peng, QiushaThis 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.