Essays on macroeconomic volatility

This thesis consists of three empirical essays on different aspects of macroeconomic volatility. The first essay provides evidence of a causal and economically important relation between financial development and macroeconomic volatility by looking at the effect of financial development in the volatility of sectors with different liquidity needs. The results show that sectors with high liquidity needs are relatively more volatile in financially underdeveloped countries. These sectoral effects of financial underdevelopment can significantly increase macroeconomic volatility, despite the fact that financial underdevelopment also induces countries to move away from sectors with high liquidity needs. The second essay explores the causes of the decline in U.S. manufacturing volatility during the last two decades. The essay presents and estimates a model that decomposes the changes in the volatilities of manufacturing sectors among the effects of output composition, aggregate shocks, sectoral shocks, and sectoral linkages. The results show that changes in the volatility of aggregate shocks and their impact across sectors account for the most of the decline in U.S. manufacturing volatility. A smaller role is played by changes in the volatility of sectoral shocks and in the intensity of sectoral linkages. The third essay analyzes both the sectoral effects of monetary policy and the role that monetary policy plays in the transmission of sectoral shocks. Our methodology is applied to the case of the U.S., finding considerable differences in the response of different sectors to monetary policy. The results also show that monetary policy is an important source of sectoral transfers: a shock to Equipment-and-Software Investment, naturally identified with the high-tech crises, induces a monetary policy response that generates a temporary boom in Residential Investment and Consumption of Durables, but which has almost no effect on the high-tech sector.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2003

Author dc:creator

• Raddatz, Claudio E

Advisor dc:contributor.advisor

• Ricardo J. Caballero and Daron K. Acemoglu.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/17574

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/17574