My dissertation studies various questions falling into the broad context ofmacroeconomics and international economics. The questions have macroeconomiccomponents because they are concerned with the behavior of aggregates. Specifically,the second and third chapters of my dissertation study the causes of fluctuations inaggregate macroeconomic variables and the way policy can be coordinatedinternationally to reduce these fluctuations, respectively. In addition, chapters III and IVaddress questions that fall into the realm of international economics. They are concernedwith the optimal exchange rate regime between two countries, the consequences ofpartial exchange rate pass-through and the effect of an increase in vertical Foreign DirectInvestment (FDI) by domestic firms. The framework of my analysis is given by differentversions of general equilibrium models.The second chapter of my dissertation decomposes fluctuations in aggregate observablesfor the UK economy during the 1980s recession. Using a modern accounting procedure,I estimate parameters that describe the economy using annual data from 1970 to 2002. Then, I simulate different versions of the model to find the distortions that are essentialin driving the observed fluctuations. I find labor market distortions to be crucial inaccounting for the episode, suggesting that the policies of the time were well targetedand effective.The third chapter of my dissertation studies policy coordination in a two-countryframework allowing for partial pass-through. In particular, both countries are assumed tohave monetary and fiscal stabilization instruments available. The optimal setting of theseinstruments under differing pass-through regimes is analytically derived. Fiscal policy isfound to be used in a counter-cyclical fashion. In addition, the magnitude of fiscalstabilization is the largest when pass-through is partial.In the fourth chapter, I study the consequences of vertical FDI on aggregate productivityand welfare. The framework allows for heterogeneity across firms in two dimensions. Itis firms that are at a disadvantage with respect to manufacturing costs that are benefitingmost from moving their production process abroad. Overall, the ability to engage invertical FDI increases productivity, lowers prices and thus increases welfare.
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