Alumni Dissertations and Theses

 
 

Alumni Dissertations and Theses

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  • Essays in Labor Economics and Econometrics: Applications of The Copula Method

    Author:
    Takuya Hasebe
    Year of Dissertation:
    2013
    Program:
    Economics
    Advisor:
    Wim Vijverberg
    Abstract:

    This dissertation mainly consists of three essays of original research. One element that these essays have in common is a copula method that generates joint distributions in flexible ways. Therefore, Chapter 1 describes the copula method as an introduction. Two essays, Chapter 2 and Chapter 3, are empirical research in the field of labor economics, in which the copula method is applied to construct econometrics models. One essay, Chapter 4, uses copulas in order to develop a new econometric technique. Chapter 2 empirically investigates the difference in wage structures of permanent workers and temporary workers in the Netherlands. The findings are that starting wages of permanent workers are slightly lower than starting wages of temporary workers and that wages of permanent workers grow more rapidly than wages of temporary workers. These findings derive from an econometric model that is built on a distributional assumption using the copula method that relaxes the traditional model. Chapter 3 empirically investigates the structure of adjustment costs of factors of production with a plant-level panel dataset from the Indonesian manufacturing sector. The copula method is applied in order to estimate the adjustment costs of labor and capital simultaneously and to differentiate the distribution assumption from a more standard approach used in previous studies. The estimates provide evidence of nonconvex and asymmetric adjustment costs of both labor and capital. Chapter 4 proposes a new approach to estimating sample selection models that combines Generalized Tukey Lambda (GTL) distributions with the copula method. The GTL distribution is a versatile univariate distribution that permits a wide rangeof skewness and thick- or thin-tailed behavior in the data that it represents. The versatility arising from inserting GTL marginal distributions into copula-constructed bivariate distributions reduces the dependence of estimated parameters on distributional assumptions in applied research. A thorough Monte Carlo study illustrates that our proposed estimator performs well under various data generating processes. Six applications illustrate the value of the proposed GTL-copula estimator.

  • ESSAYS ON CENTRAL BANK INTERVENTIONS IN ADVANCED AND EMERGING MARKET ECONOMIES AN APPLICATION TO JAPAN AND TURKEY

    Author:
    Marwa Hassan
    Year of Dissertation:
    2009
    Program:
    Economics
    Advisor:
    Merih Uctum
    Abstract:

    Despite the move to floating exchange rates after the breakdown of the Bretton Woods system in 1973, Foreign Exchange Intervention (FXI) remains a commonly used tool for influencing exchange rates in most developed economies as well as emerging markets. The objective of this study is threefold which can be seen in my separate essays. The first objective is to survey the literature on FXI. In my first essay I provide sections on the theoretical channels through which FXI might affect exchange rates, and critically analyze empirical literature on the effectiveness and motivation of intervention in both advanced and emerging markets. The second objective is to perform a comprehensive empirical study on the FXI in Japan as an example of an advanced economy. In my second essay, I test whether model specification, frequency, and size of intervention produce different impacts of the effectiveness of FXI. I find that model specification yields varying impacts of the effectiveness of FXI. In particular, it is misleading to generalize results obtained from the simple GARCH model because the effectiveness of FXI is highly dependent on the employed model. The explicit distinction between the impact of the frequency and size of intervention provides an accurate measure of the effect of each factor on the exchange rate. This is in contrast to current studies of the Japanese FXI that only rely on the different patterns intervention in testing its effectiveness. I conclude that the frequency of intervention is more important in affecting the level of the exchange rate while the size of intervention is more influential in affecting its volatility. In my third essay, I estimate the reaction function of the Japanese FXI accounting for different measures of volatility. I find that deviations from medium term, long term and implicit exchange rate targets as well as the volatility of the exchange rate during periods of yen appreciation are considered the key factors motivating JMA to intervene. The third objective is to test the effectiveness of FXI in Turkey; an emerging economy adopting Inflation Targeting (IT) regime. In my fourth essay, using a multi-variate GARCH model, I find that there is always a room for direct FXI to coexist within an IT regime, and to influence the domestic currency to improve competitiveness in the tradable goods markets as long as current inflation rates are within their target bounds. This is in contrast to the previous argument that limits the role of FXI to reducing the volatility instead of defending a particular exchange rate under an IT regime. Using the same model, I find spillover effects of FXI in the sense that change in the TRY/USD as a result of CBT intervention in the FX market leads to change in the TRY/EUR.

  • MODELING THE DEPENDENCE BETWEEN STOCK INDEX AND EXCHANGE RETURNS WITH COPULA-EXTREME VALUE THEORY BASED SEMIPARAMETRIC APPROACHES AND THEIR APPLICATIONS IN RISK MANAGEMENT

    Author:
    Chun-Pin Hsu
    Year of Dissertation:
    2009
    Program:
    Economics
    Advisor:
    Peter Chow
    Abstract:

    Measuring Value-at-Risk (VaR) is an important function in financial risk management. One of the most popular methods of computing VaR is the Monte Carlo simulation, which focuses on utilizing an appropriate approach to estimate the dependence between returns of financial assets. However, the existence of fat-tailed, skewed distributions and non-linear relationships of financial asset returns makes conventional Pearson product-moment coefficient approach incongruous. To overcome this difficulty, the current research applies the extreme value theory (EVT) in order to model the tails of the return distributions and copula functions to build the joint distribution of returns. More specifically, in the copula-EVT-based methodologies, the marginal distributions of asset returns are modeled using a semiparameter approach in which the distribution center is modeled by a nonparameter empirical distribution and the distribution tails are modeled by the generalized Pareto distribution (GPD) with parameters; furthermore, three copula functions---Gaussian, Gumbel, and Clayton---are applied to model the general, upper-tail, and lower-tail dependencies. To test the advantages of these approaches, six Asian countries were selected based on their different stock index and foreign exchange return distribution shapes, and backtestings were conducted to examine the Monte Carlo VaRs simulated from the correlation coefficients estimated by the Pearson product-moment coefficient, the Gaussian copula, the Gaussian copula-EVT, the Gumbel copula, the Gumbel copula EVT, the Clayton copula, and the Clayton copula- EVT. The results suggest that the Clayton copula-EVT has the best performance regardless of the shapes of the return distributions.

  • ESSAYS ON THE MUNICIPAL BOND MARKET

    Author:
    Su Huang
    Year of Dissertation:
    2013
    Program:
    Economics
    Advisor:
    Liuren Wu
    Abstract:

    This dissertation focuses on the municipal bond market. Chapter 1 first introduces the classification of municipal bonds, then summarizes the literature that talk about the determinants of municipal bond yields, and finally classifies the determinants into three classes: the economic status of the state where the bond is issued, the demographic characteristics of the state, and the financial status of the state or the local government where the bond is issued. Chapter 2 introduces two nonparametric econometric techniques, including nonparametric regressions and gradient boosting. Compared with traditional ordinary least square methods, these two techniques can help us capture both nonlinearity and potential random interactions among key determinants in the analysis of municipal bond yields. Chapter 3 performs a comprehensive analysis on the determinants of general obligation municipal bond yields and examines the impact of the recent financial crisis on the underlying relations. A systematic comparison of the relations before and after the 2008 financial crisis shows that the economic and financial health of local governments has become markedly more diverse since the crisis began. The relation between the municipal bond yields and the economic and financial health of the local governments has also become stronger because of the larger differentiation among the local governments and hence larger signal to noise ratio, as well as closer scrutiny by market participants on the economic fundamentals of municipal governments. Chapter 3 also provides a new prediction framework and shows that accommodating nonlinearities and random interaction effects can significantly enhance the predictive performance on the municipal bond yields.

  • MONETARY SHOCKS AND THE BOND MARKET'S REACTION: EVIDENCE FROM THE NARRATIVE APPROACH TO SHOCK IDENTIFICATION

    Author:
    Chin-Wen Huang
    Year of Dissertation:
    2009
    Program:
    Economics
    Advisor:
    Thom Thurston
    Abstract:

    This paper studies the effect of monetary policy on bond yields using the narrative shocks derived from the work of Romer and Romer (AER, 2004). Monetary shocks are orthogonalized against authorities' forward-looking behaviors, thereby capturing the true monetary effect on the economy. The challenge in empirical studies examining monetary policy is how to develop a measure that can accurately distinguish the endogenous policy movements from the exogenous monetary shocks. By employing the monetary shocks derived from the work of Romer and Romer (AER, 2004), this study shows that although monetary effect on the bond yields is transitory, its influences on the bond yields can last longer than previous studies have argued. Empirical evidence also indicates that (1) a negative (expansionary) shock has a stronger effect on the bond yields than a positive (contractionary) shock does; (2) a larger shock has a greater influence on the bond yield than a smaller shock does; and (3) a shock during a recession carries more weight than a shock during expansions. These results support the arguments put forth in interest rate channel of monetary policy and asymmetry properties of bond reactions.

  • AN ANALYSIS OF THE LABOR MARKET, INTERNATIONAL MIGRATION AND REMITTANCES DURING TRANSITION: THE CASE OF ALBANIA

    Author:
    ILIR HYSA
    Year of Dissertation:
    2013
    Program:
    Economics
    Advisor:
    Wim Vijverberg
    Abstract:

    This dissertation consists of four chapters exploring the transition dynamics of unemployment and migration of Albanian workers as well as the remittances sent by migrant workers to their households in Albania. The first chapter analyzes the duration of unemployment for unemployed Albanian workers during the time period 2002-2004. Survival and hazards functions of unemployment duration are generated to understand the relationship between the duration of unemployment and personal characteristics and worker occupation. The study finds that more than a decade since the beginning of the transition to a free market economy, many workers still face long unemployment spells. In an effort to help policy-makers design policies that deal with unemployment, within-sample and out-of-sample predictions are generated. Moreover, the models developed here can be replicated with future data to make predictions about future unemployment spells. The second chapter analyzes the impact of labor market performance on migration decision. It finds no evidence that labor market performance, as measured by the wage rate and the return to unobservable personal traits, affects the migration decision. Such conclusion may be the result of unrealistic assumptions of perfect labor mobility and perfect information implicitly assumed in the model. Moreover, given large wage differentials between Albania and neighboring countries, wage increases in Albania are not sufficient to entice changes in the decision to migrate. Therefore, the migration decision seem to go far beyond the labor market and included deep psychological and emotional factors associated with the long period of isolation under the communist dictatorship. The third chapter summarizes the theoretical models and predictions regarding the motives for remittances and provides the basis for the empirical work done in the following chapter. The final paper analyzes motives for migrants' remittances during transition. Specifically, it analyzes whether remittances indicate repayment of the schooling costs, a desire to inherit assets, and/or whether remitters respond to adverse shocks experienced by recipient households. Unlike studies to date, this study uses a Maximum Likelihood specification that jointly analyzes the migration decision and the decision to remit in a contractual setting, while correcting for migrants' self-selection. The study incorporates cultural elements, such as rights and responsibilities associated with being the youngest of siblings, burden-sharing etc. Our results show that highly educated migrants repay their schooling costs after a certain period of time. The evidence that migrants remit in order to maintain favor toward inheritance is weak at best. There is no evidence of any responses to adverse shocks. However, this does not exclude the possibility of altruism. In fact, the evidence of burden-sharing among migrant siblings points in that direction.

  • Effects of Health Status on the Decision to Retire with Corrections for Measurement Error

    Author:
    Kyung-Rae Hyun
    Year of Dissertation:
    2009
    Program:
    Economics
    Advisor:
    Michael Grossman
    Abstract:

    Many studies on the relationship between labor supply and health status generally do not illustrate a unanimous agreement on the usage of subjective and objective health due to the difficulty in employing the right measures to obtain the precise and up-to-date information on the health status of subjects in question. Thereby, to resolve this quandary, we propose two models; the first model addresses how a researcher could obtain more appropriate estimate in health measure with measurement error; the other model examines whether probabilities questions within and across waves could potentially result in another measurement error. In the first model allowing to justification bias, we found the health and financial compensation' lower and upper bounds for labor force exit and in views of bounds concept, health status plays a larger role in labor force exit than financial compensation. In the second model, we found that measurement error from survey effect has an impact on the survival probability along with the measurement errors from an inherent errors-in-variable bias by using two methods: the former employing the averaged survival probabilities and the latter incorporating the instrumental variables.

  • Essays on Labor Market Matching, Labor Mobility and Educational Mismatch

    Author:
    YAN JIANG
    Year of Dissertation:
    2012
    Program:
    Economics
    Advisor:
    Wim Vijverberg
    Abstract:

    This dissertation includes three essays on labor market matching, labor mobility and educational mismatch. Essay one is a literature survey on labor market matching. It is the first attempt in the literature to link various aspects of labor market matching. After an overview of the structural equilibrium search models, I elaborate on the micro-foundations of the matching function, a major modeling tool to capture the influence of frictions on equilibrium outcomes. Issues such as turnover theory, mismatch and dynamic income processes are also examined in this survey. Essay two considers the effect of voluntary job mobility on worker well-being. Using data from National Longitudinal Survey of Youth 79 (NLSY79), I construct measures of worker well-being that take into account various ingredients likely to factor into a worker's utility at workplace. I adopt a difference-in-differences matching strategy to uncover the otherwise unobservable potential outcomes of not changing jobs and identify the effect of voluntary labor mobility on worker well-being. The result shows that voluntary turnover increases the well-being at workplace for movers who are in the early stage of their career and conduct complex job changes involving different types of job. However, the positive effect of job mobility is insignificant and much smaller for movers taking simple job changes. This is in contrast with the fact that complex job movers actually experienced insignificant wage gains from the mobility. This result highlights the role of non-pecuniary job rewards in triggering voluntary turnover. Essay three considers the wage effects of educational mismatch using data from the 2003 wave of National Survey of College Graduates (NSCG 2003). I find that the average wage loss associated with educational mismatch is significant and persistent. Graduates who are mismatched for involuntary reasons incur greater wage penalty compared to those for voluntary reasons. In addition, graduates with advanced degree suffer more from mismatch relative to those with only bachelor's degree. Lastly, there are considerable amounts of variations in the distributional impacts. The wage penalty is quite large at lower quantiles and decrease sharply towards higher quantiles.

  • Essays on Firm Financials and Stock Returns-Evidence from Monetary and Asset Pricing Perspectives

    Author:
    Jun Jiang
    Year of Dissertation:
    2012
    Program:
    Economics
    Advisor:
    Thom Thurston
    Abstract:

    This dissertation studies the link between firms' external financial constraint and stock returns. Having identified the difference between financial distress and financial constraint (non-distressed), the paper investigates both problems separately. 1) Based on Bernanke, Gertler, Gilchrist (1999)'s theory on the financial accelerator, I show that firms' leverage can capture firms' exposures to distress risks. Sorting firms by their leverages and book to market ratios, the stock price only incorporates distress risk for value firms since the sensitivities of stock returns to unanticipated monetary shocks (measured in absolute values) are lower for highly leveraged growth firms. 2) I also explore the financial constraint puzzle in asset pricing literature by using Campbell and Vuolteenaho (2004)'s two-beta model. By decomposing stock's return into cash flow news and discount rate news, I am able to explain why financially constrained stocks do not yield a positive return premium over unconstrained counterparts and why financially constrained stocks tend to move together.

  • Three essays on the foreign exchange markets

    Author:
    Nengzhi Jiang
    Year of Dissertation:
    2010
    Program:
    Economics
    Advisor:
    Tao Wang
    Abstract:

    The first essay study the explanation power of the macroeconomic news for the foreign exchange fluctuation. We use Kalman filter and maximum likelihood method to extract several dynamic factors from 27 noisy and sparsely observed macroeconomic news deviations. We further input the news factors as independent variables in our VECManalysis. The fitted results show that the news factors' contribution is limited. The out of sample prediction yields the same conclusion. The uncovered interest rate parity hypothesis has frequently been rejected. This hypothesis, however, has seldom been tested at the very short end of the forecasting horizon where forward rates are measured in days. The second paper reinvestigate the UIRP puzzle in diversified horizons. Using overnight, two-dayand three-day forward rates, we find that the forward premia in these short forward horizons are stationary than the forward premia in longer horizons. This contrasts with recent findings that the forward premia, in longer forward horizons, are fractionally nonstationary. Estimation results indicate that forward premia are essentially unbiased estimates of the future spot returns. Once the interest rate differential is the dominant source of information in the foreign exchange market, the forward premium forecasts the spot returns relatively well. The last essay we have a empirical study of the VECM prediction power. we use the rolling regression method to generate series of parameters and dynamically predict the next period's foreign exchange rates. We compare the forecast errors from the rolling regression VECM and that of the random walk model. We also set up a trading strategy which longs or shorts the foreign currency based on the forecasts. Our trading simulation shows that this informed trading makes positive return in medium horizon, while the simple buy and hold strategy's return is insignificant.