Three essays on volatility and persistence in dynamic economies
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To study the dynamic economies rather than the static ones allows us to understand chain reactions of economic behaviors explicitly, and so their volatility and persistence. This dissertation studies different output volatility across countries and across production sectors in a country and it examines an endogenous mechanism supportive to amplification and persistence in dynamic economies. In the first chapter, production connection through intermediate inputs is studied for an amplification mechanism, which stems from Leontief (1936) in the input-output analysis. It is known that developing industrial countries show larger output volatility than developed countries. Here I relate higher output volatility with higher intermediate input shares. When contrasting against the G-7 countries, twelve percentage of Asian developing industrial countries’ excessive output volatility is accounted for by their higher intermediate input shares. By contrast, Latin American countries show larger output volatility than G-7 countries but lower intermediate input shares; their exogenous shock against the G-7 group may be larger than when measured only by the typical Solow residuals. The second chapter studies the sector volatility against the overall or average volatility of an economy. I claim that the output volatility of a sector against the overall output volatility is associated with its final demands. In the U.S. economy, the industrial sector shows larger standard deviation than GDP. The ratio of its consumption share to investment share is 0.42, implying the final usage of industrial commodity is oriented more to investment than consumption. Considering rational people want smooth consumption over time, it is plausible that investment-oriented sector shows higher volatility. Seventy nine percentages of higher volatility in the industry sector are accounted for by the aggregate shocks. The third chapter suggests collateral constraints for an amplification and persistence mechanism. I introduce debt-collateral ratio, which measures strength of collateral constraints, into Kiyotaki and Moore (1997). The model shows trade-off relationship between persistence and amplification when debtcollateral ratio gets near to unity. With the theoretical model, I study the residential land usage in Korea. Assuming that there is no serial correlation of exogenous shock, I find debt-collateral ratio involved with the land usage; which is 0.8.