Theses and Dissertations from UMD
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New submissions to the thesis/dissertation collections are added automatically as they are received from the Graduate School. Currently, the Graduate School deposits all theses and dissertations from a given semester after the official graduation date. This means that there may be up to a 4 month delay in the appearance of a give thesis/dissertation in DRUM
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Item Essays on Capital Controls and the Informal Economy(2007-08-03) Vuletin, Guillermo Javier; Vegh, Carlos A; Reinhart, Carmen; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation addresses the issues of capital controls and informal economy. Both subjects have evoked considerable interest in both academic environments and policy circles, especially given their importance for developing countries. The dissertation is structured as follows. Chapter 1 analyzes how exchange rate regimes influence fiscal discipline. This important question has typically been addressed using models assuming perfect capital mobility, even though capital controls are pervasive in developing countries. This chapter analyzes the effects of capital controls on fiscal performance by focusing on dual exchange rate regimes. In a model in which fiscal policy is endogenously determined by a non-benevolent fiscal authority, the paper shows that capital controls induce impatient politicians to have looser fiscal policies than under fixed and flexible regimes operating under perfect capital mobility. While capital controls enable politicians to enjoy the same temporarily low inflation as fixed regimes (since the commercial exchange rate is assumed to be fixed) lax fiscal policies also result in a temporary consumption boom which is regarded as desirable by impatient politicians. The consumption boom occurs because, as households attempt to get rid of unwanted real money balances, the real domestic interest rate falls. Empirical analysis confirms that capital controls lead to larger primary deficits than fixed and flexible regimes. The study considers a dynamic panel data specification and controls for endogeneity by using a standard instrumental variables approach and natural disaster events to evaluate the response of fiscal policies under diverse regimes. Chapter 2 estimates the size of the informal economy for the Eastern Caribbean Currency Union (ECCU) countries and 26 mainly Latin American countries in the early 2000s, being the first study to address this issue for the ECCU economies and many other Central American and Caribbean countries. Using a structural equation modeling approach we find that a stringent tax system and regulatory environment, higher inflation and dominance of the agriculture sector are key factors in determining the size of the informal economy. The results also confirm that a higher degree of informality reduces labor unionization, the number of contributors to social security schemes and enrollment rates in education.Item Risk Aversion, Private Information and Real Fluctuations(2005-07-29) Pardo, Cristian; Shea, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I further explore the role of the entrepreneurial sector in creating frictions in the economy. I examine the combined effect of private information and entrepreneurial risk aversion on the dynamics of a general equilibrium macroeconomic model. I analyze the impact of these frictions both at the micro level, in terms of the optimal contract between lenders and borrowers, and at the aggregate level within the context of a dynamic stochastic general equilibrium model. This analysis uses a model similar to Bernanke, Gertler and Gilchrist (1999), in which the entrepreneur benefits from private information. Allowing for risk aversion among entrepreneurs modifies the optimal contract by introducing insurance and a risk premium that risk-averse entrepreneurs demand due to the stochastic nature of their investment returns: the private equity premium. This premium, in general equilibrium, may become a mechanism that magnifies and propagates the effects of shocks over time. The model predicts that economies with a relatively larger privately-held sector, all else equal, should be more volatile than economies with a relatively more important corporate sector. I first examine a closed-economy framework, which isolates the role of the private equity premium as a mechanism that magnifies and propagates shocks over time. I then consider a small open economy and examine the role of exchange rates in affecting the private equity premium and the model's dynamics. I find that the exchange rate helps alleviate the propagating feature of the private equity premium. I also execute an exchange rate regime comparison where I show that the greater volatility associated with flexible exchange rate regimes adversely impacts the private equity premium and the supply of capital, amplifying the output response to shocks. I find that fixed exchange rate regimes could be preferable under less restrictive conditions than those commonly found in the literature.