Economics Theses and Dissertations

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Essays on Econometrics and Macro-Finance
(2019) Mao, Zi-Ying; Heston, Steven; Kuersteiner, Guido; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation consists of three chapters on empirical macro-finance and the associated econometric methods. In the first chapter, I develop a semiparametric single-index method for estimating multivariate jump-diffusion processes to model federal funds futures. I find that high-frequency changes in federal funds futures around FOMC announcements, which are the predominant measure of monetary policy shocks in the asset pricing and macroeconomic literature, are strongly forecastable by the estimated models, suggesting that they are not truly exogeneous. In contrast, the unexpected changes in federal funds futures on FOMC announcement days constructed from the semiparametric method are unforecastable by construction, and are strongly correlated with, but not the same as such high-frequency changes around FOMC announcements, suggesting that they are a better measure of monetary shocks. In the second chapter, I study the predictability of bond yields. I find that federal funds futures, a proxy of monetary shocks, exhibit strong forecasting power on bond yields conditional on information contained in the cross section of the yield curve. Such additional return-forecasting information is effectively summarized by a single factor, and is not captured by unspanned macro factors. By focusing on the return-forecastability of trading strategies that take opposite positions at two different tenors by equal amount and unwind these positions one-day later, I bypass common econometric issues arising from the overlapping nature of bond excess returns. In the third chapter, I study macro factors in the risk premia of G10 currencies. Motivated by the finding from a structural model with minimalistic assumptions that the predictability of currency risk premium arises from the differences in the market prices of risks between the home and foreign countries, I tackle this problem by identifying return-forecasting macro factors for the G10 currencies. Based on dynamic factor analysis on a large panel of macro variables, it is found that common macro factors possess strong forecasting power on the risk premia of G10 currencies, especially at longer maturities. The single most important factor loads heavily on activities in the US housing market and bond yields, which exhibits uniform and nonlinear forecasting power across all currencies and at a variety of maturities. The strong in-sample forecasting power preserves out-of-sample.
Finance and Productivity
(2019) Sever, Can; Kalemli-Ozcan, Sebnem; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Financial crises are associated with large and persistent output losses, pointing to productivity losses. A potential channel for this phenomenon is the negative impact of disruptions in financial markets on innovative activity, since innovation is the key driver of productivity and economic growth. Throughout three chapters of my dissertation, I provide evidence for this channel. Using data from advanced, emerging market and European economies, following different financial crisis episodes, I show that financial crises lead to a persistent decline, not only in the economic output, but also in innovation. The findings in this dissertation have implciations for macroeconomic policies such as monetary and fiscal policies, structrucal reforms, crisis prevention policies and policies that can shelter productive investment projects from financial frictions.
ESSAYS ON TARGETED PROGRAMS IN EDUCATION
(2019) Witzen, Brian Heath; Turner, Lesley J; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation examines three examples of education policy that affect students' decision-making at three different stages of the academic career. In the first chapter, I examine how grant aid can affect the re-enrollment and graduation rates of bachelor's degree-seeking students. I use administrative data from the State of Maryland to study the state's largest need-based grant aid program using a regression discontinuity design. I find positive effects of grant receipt on re-enrollment beginning in the second year and a 10\% increase in the rate of persistence to the fourth year, with similar-sized, but more imprecise effects on graduation within 5 years of entry. In the second chapter, I study State Loan Repayment Programs which pay down a physician's medical school debt in exchange for a period of service in a health care provider shortage area. I gather data from individual states on the amounts that their programs offer over time and use changes in designations of health care provider shortage areas to implement a generalized differences-in-differences strategy. I find no overall effect of the programs on the physician-to-population ratio of an area eligible for the program, though I do find evidence of a positive effect on the physician-to-population ratio when I focus on the age group where physicians are most likely to be recent medical school graduates. In the third chapter, I examine the effect of high school Career and Technical Education coursework completion on postsecondary enrollment, degree completion, and early career earnings. I utilize two estimation strategies. The first is a propensity score matching approach and the second is an instrumental variables approach based on the distance between a student's high school and a CTE Center that offers the coursework. The two strategies generally find that CTE is associated with a substitution from four-year programs to two-year programs, and positive effects on early career earnings.
Essays on Information Manipulation and Optimal Decision Making
(2019) Saraiva, Gustavo Quindere; Ausubel, Lawrence; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation studies a variety of topics related to information manipulation, such as the manipulation of reviews in online rating platforms, or the act of misreporting one's preferences in matching mechanisms; and how those manipulations affect the overall allocation in the economy. Chapter 1 analyses the incentives that drive some sellers to fake reviews in online rating platforms, such as Amazon and Yelp. Among other things, I find that sellers' optimal investment in fake reviews is not a monotone function of their reputation. More precisely, sellers that currently possess a very good or very bad history of past reviews have less incentives to solicit fake reviews praising their own products, the intuition being that, for sellers with very bad reputation, it is too costly to pretend that they are high quality sellers; while sellers that have already accumulated a very good reputation do not need to spend much effort in convincing buyers that they are high quality sellers. Moreover, in order to maximize the impact from each fake review, sellers tend to concentrate review manipulation at the initial stages after they have entered the market. Chapter 2 develops a theoretical model aimed at explaining the observed polarization on agents' beliefs regarding topics that have objective truths (e.g., such as whether or not global warming is a hoax). The main premises surrounding the model are that rational agents seek to learn the truth about a certain state of the world, but the acquisition of information is costly, and the available information channels are biased and imprecise. The paper vies to understand how the level of bias from those channels affect opinion polarization overall. Chapter 3 analyses agents' incentives to misreport their preferences or vacancies in large stable matches. I find that, under certain assumptions, those incentives vanish for sufficiently large markets, suggesting that stable matching mechanisms are effectively strategy-proof for sufficiently thick markets.
THE ROLE OF INFORMATION IN PRIVATE VALUE AUCTIONS
(2019) Pivovarova, Svetlana; Sweting, Andrew; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation studies the role that the information available to the participants of private value procurement auctions prior to the auction has on the equilibrium auction outcomes. Chapters 1 and 2 present two different models in which the private type of one of the participants is persistent over time and can be informative to her competitors. Chapter 3 looks at the effects of a policy change making the information about upcoming procurement auctions more easily available has on the entry of different types of firms in the auctions. In Chapter 1 I build and estimate a model of repeated asymmetric first price auction in which one of the bidders has a persistent private type, all bidders are backward looking, and all bids are made public after the auction. In particular, I show that the standard model without a binding reserve price misestimates expected procurement costs by 2-14% compared to my model, and withholding past bid information from auction participants can reduce expected procurement costs by up to 11%. These results are relevant for the estimation of both US highway procurement auctions since all of the states' Departments of Transportation publish full auction results online. In Chapter 2 I look at a theoretical model of repeated asymmetric first price auction in which all bids are made public between the auctions, one of the bidders has a persistent private type and is forward-looking. I show that a strictly monotonic equilibrium would not exist in this game, and provide an example of a partially pooling equilibrium in which the bidder with persistent type forgoes profits in the earlier period to withhold the information from her competitors in future periods. Chapter 3 studies the effect that the changes in public procurement rules in Russia had on participation and bidding in regional gasoline procurement auctions. In particular, I look at the difference in changes of entry and bidding patterns for large and small firms after the information about upcoming auctions became more easily available in Jan 2011. I show that the larger firms who have stations both outside and inside of the studied region enter more auctions and bid more aggressively, while local firms who only have stations inside the region do not change entry patterns and bid less aggressively. I associate these changes to the differential changes in entry costs for the different types of firms and confirm this intuition by comparing the structural estimates of entry costs between firm types and time periods.
Essays on Auction Theory and Application
(2019) Tu, Shunjie; Vincent, Daniel; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation contributes to auction theory with application of the theory to the analysis of some real-life problem. In Chapter 1, I study the problem of competition between contest designers where they offer differentiated prizes to a group of contestants with some minimal effort requirements. The equilibrium among contestants is either a separating equilibrium, where strong contestants participating in high-prize contest and weak contestants in low-prize contest, or a mixing equilibrium, where strong players participate in high-prize contest with probability 1, middle-type players randomize between the two contests, and weak players go to low-prize contest with certainty. I then solve an equilibrium of contest designers where one designer's choice of minimal effort level is assumed to be non-strategic. Finally, I provide conditions such that the assumed non-strategic choice of minimal effort level is optimal and thus characterize at least part of the equilibrium set, which expands the knowledge on competing auctions. In Chapter 2, I apply auction theory to analyze the eﬀect of a merger on ﬁrms’ research and development (R&D) investment. There is a substantial literature on the eﬀects of mergers on product prices, but the eﬀects of mergers on other outcomes, such as R&D investment spending, are less studied. I develop a model for evaluating the likely eﬀects of a merger (or joint research venture) on the R&D eﬀorts of competing ﬁrms. The R&D process is modeled as an all-pay contest (auction) among ﬁrms, with the payoﬀ from investment going to the ﬁrm that invests the largest amount. I provide an explicit characterization of the equilibrium in a multi-player asymmetric all-pay contest model. The equilibrium solution then is applied through simulation to calibrate the eﬀects of mergers on ﬁrms’ R&D eﬀorts and eﬃciency as well as on social welfare. I ﬁnd that each ﬁrm is expected to exert more eﬀorts after a merger, but if there are only few ﬁrms premerger, a merger reduces total R&D eﬀort. A merger may also cause ineﬃciency, but the loss in eﬃciency is low. My results also show that net surplus increases after a merger if the number of ﬁrms is small. In Chapter 3, I study a problem of sequential auctions and extend the standard model of sequential second-price auctions to a dynamic game with an inﬁnite horizon with one new buyer entering the auction every period. I ﬁrst derive properties of the symmetric and stationary equilibrium, where buyers bid according to their private valuation less a pivotal continuation value, and I also show that the price path in such equilibrium is weakly decreasing. Imposing preconsistent beliefs, I give the conditions under which a stationary equilibrium exists.
Essays in Centralized Market Allocaitons
(2019) Velez Ferro, Santiago; Ozbay, Erkut; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
A long-standing policy concern in many countries is the diﬃculty of ﬁlling medical positions in rural areas. In Colombia, the Ministry of Health requires newly graduated health professionals to work in a rural or marginalized urban area for a year in order to receive professional certiﬁcation. The decentralized mechanism used until 2013 to allocate graduates to slots was one that health professionals could manipulate to avoid an assignment. In 2014, a single-oﬀer centralized mechanism that cannot be manipulated to avoid an assignment, based on Gale and Shapley’s deferred acceptance algorithm, was adopted. Following a revealed preference approach, I estimate health professionals’ hospital preferences using the 2014 data. Using these estimates and the fact that under the decentralized mechanism health professionals were able to avoid positions that fall below their acceptance threshold, I obtain the average marginal utility a health professional would require to accept a position by simulating the outcome had the decentralized mechanism still been in use. Then, I simulate the outcome of the centralized mechanism in the absence of the requirement that students accept the assignment determined by the mechanism. I ﬁnd that, given the choice, about 30% of physicians would be left unassigned, im plying that it is important for the policy’s success that assignments be mandatory. I review many algorithms that have been discussed in the literature and ﬁnd some that result in signiﬁcant welfare gains. Finally, I show that, in this setting, there is no evidence that manipulable mechanisms can yield a higher welfare gains.
ESSAYS ON PREFERENTIAL TRADE AGREEMENTS
(2019) Laget, Edith; Limão, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Preferential Trade Agreements (PTAs) are a prominent feature of current globalization. Over the last decades, country participation in PTAs has become widespread, with each member of the World Trade Organization having signed an average of 10 PTAs, up from 3 PTAs in 1990. Most importantly, the proliferation of PTAs was accompanied by a significant deepening of their scope. Their content now spans diverse behind-the-border disciplines, such as investment, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures , intellectual property rights, visa and asylum, labor market laws and environmental regulations. In order to quantify the impacts of the provisions included in PTAs on various outcomes of interest, such as gross trade, foreign direct investment (FDI), global value chains, quality, and so on, trade economists face several empirical obstacles to model Non-Tariff Measures (NTMs). While it is straightforward to model provision, such as an import quota or an export tax with an ad-valorem tariff equivalent, this technique is not suitable for other provisions that do not purely deal with market access. Many NTMs are implemented to address behind-the-border issues rather than to discriminate against foreign businesses. Therefore, it would be misleading to restrict the effect of certain trade policies to their market access dimension only. The objective of this dissertation is two-fold: it is, first, to understand the impacts of the overall content of PTAs on economic outcomes and, second, to shed light on the relationships of specific disciplines included in PTAs with those outcomes. In the first chapter, I review the recent evolution of trade and investment integration and how the content of PTAs has been reshaped over the years. The second and third chapters are dedicated to the analysis of two of the most frequent provisions in PTAs — TBT and SPS provisions. In the theoretical part, I augment the structure of the traditional Melitz model to assess the impact on quality of such provisions. I model TBT/SPS measures as domestic regulations ensuring minimum quality of goods. By integrating these regulations, PTAs change the economic struc- ture of the model (with respect to minimum quality enforcement) from segmented to joint markets. I highlight two potential channels to explain the change in quality of exported goods following the enforcement of a PTA with TBT/SPS provisions. The first channel for quality improvement is driven by the increase in market size. With larger markets to export to, firms have the incentive to differentiate vertically their products in order to capture bigger shares. The second channel depends on the type of provisions implemented. I consider two cases, mutual recognition ver- sus harmonization of TBT/SPS measures. The ultimate impact on quality of this regulatory channel depends on the new reference for minimum quality once a PTA is signed. Then, I empirically test the importance of these two channels using new data on the content of PTAs and estimates of the quality of imported goods. I find that mutual recognition positively impacts quality relatively more than harmoniza- tion. This result is driven by PTAs between developed and developing countries. The effect is heterogenous across sectors, with bigger impact of deep PTAs on goods that have a wider scope for quality differentiation. Finally, I study the impact of PTAs on FDI and find that deep PTAs promote foreign investments. The impact is bigger for projects related to service activities, as well as North-South investment relationships.
ESSAYS ON BANK CAPITALIZATION AND MACROECONOMIC FLUCTUATION
(2019) Hong, Xing; Shea, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This thesis provides two studies in the relationship between bank capitalization and macroeconomic fluctuations. In the first chapter, I study the effect of bank capital shortfalls on macroeconomic fluctuations through changes in lending standards. Existing literature has primarily focused on the rise of credit spreads when banks suffer capital losses. In addition to this standard interest rate channel, this paper innovates by introducing a new credit rejection channel - denying more loan applications (tightening lending standards) - into a macro model with financial frictions. The model features an endogenous time-varying risk threshold for credit rejection, which in turn is linked to banks’ balance sheet conditions. I incorporate the rejection mechanism into a quantitative general equilibrium model and conduct a banking crisis experiment. During the crisis, loan rejection rates rise significantly, and lending rate spreads increase mildly, which are consistent with observations on the bank loan market during the Great Recession. The simulation results further show that the model with this new channel generates larger amplification of macroeconomic variables, compared to an otherwise identical benchmark model. This result is driven by a combination of two forces: a decline in loan volume and a shift in the composition of banks’ lending pool, as banks reallocate funds away from risky firms. Given that riskier firms tend to have better growth prospects, such reallocation can have long-lasting scarring effects on the economic recovery. In the second chapter, we take a normative angle of bank capital analysis. We develop a quantitative dynamic stochastic general equilibrium model to identify bank capital gaps (deviations of the observed level from the optimum) and to shed light on regulatory policies regarding capital requirement. We propose a tractable model that includes firms’ and banks’ choice on joint capital structure, and their endogenous default caused by idiosyncratic and aggregate risk. The model is estimated using Bayesian methods with quarterly data on US macroeconomic and financial variables spanning from 1991Q1 to 2016Q4. Our counterfactual analysis shows that the impulse responses in the optimal economy exhibit smaller magnitude compared to that in the calibrated economy. We further decompose the historical fluctuations in bank capital gaps into contributions from a series of financial shocks, in addition to the standard macroeconomic shocks. We find that the aggregate risk shock plays an important role in explaining the spike in capital gaps during the 2007-09 financial crisis. Capital gaps lead to (i) excessive increases in banks’ default risk and cost of funding, (ii) gaps in lending, investment, employment and output.
Equilibrium Models with Dynamic Demand and Dynamic Supply
(2019) Hui, Shen; Sweeting, Andrew T; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation comprises two studies of equilibrium models with both dynamic demand and dynamic supply sides. The first is an empirical study of the US video games industry, and the second is a theoretical study. Chapters 1 and 2 develop a model for quantifying the role of social learning in consumers’ dynamic demand and finding optimal intertemporal prices for profit maximizing firms in a market populated by forward-looking social learners. Optimal prices are a result of a Markov perfect equilibrium played between the firm and the consumers. Nested in the market equilibrium is a demand equilibrium played among consumers who make the “right” purchase/wait decisions given endogenously produced product information. The empirical exercises are conducted in two steps. The first step estimates demand parameters, including those associated with social learning. Endogeneity of prices is remedied with a pseudo pricing policy function of relevant state variables. In the second step, optimal prices are found by the Mathematical Programming with Equilibrium Constraints (MPEC) approach. The model is applied to the US video games industry with sales data of PlayStation 3 games. The results reveal that (1) compared to static social learning, forward- looking social learning reduces equilibrium profits of games in the sample by $5.2M (28.4%) on average; (2) an incorrect belief of consumers’ forward-looking behavior reduces a firm’s profits by a maximum of 29.92%. These results indicate great value for researches on consumers’ forward-looking social learning behavior. In chapter 3 we study the effect of adding strategic buyers to the computational model of dynamic price competition when sellers experience learning-by-doing and organizational forgetting developed by Besanko et al. (2010) (BDKS). The addition is motivated by the presence of repeat buyers in many industries where learning- by-doing has been documented, and the role that the assumption of a monopsony strategic buyer has played in the theoretical literature. We characterize the degree of strategic buyer behavior using a single parameter, and show that even quite limited strategic behavior changes the equilibrium correspondance by almost entirely eliminating the multiplicity of equilibria emphasized by BDKS, and ensuring that no seller is likely to dominate the industry in the long-run. We examine how the welfare of both buyers and sellers varies with the degree of strategic buyer behavior.

Economics Theses and Dissertations

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