Ortiz, Marco Antonio
(2013)
Essays in macroeconomic theory: informational frictions, market microstructure and fat-tailed shocks.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis is composed by five chapters. Chapter 1 presents a new Keynesian open economy model that includes risk-adverse foreign-exchange market dealers and foreign exchange intervention by the monetary authority. In this setup portfolio decisions made by dealers add an endogenous time variant risk-premium element to the traditional UIP that depends on FX intervention by the central bank and FX orders by foreign investors. We use the model to analyse the interactions between monetary policy and FX interventions.
Chapter 2 introduces information heterogeneity into the model presented in Chapter 1. As in Bacchetta and van Wincoop (2006), the \rational confusion" generated by
the introduction of heterogeneous information magnifies the impact of the unobservable capital flows shocks on the exchange rate.
Chapter 3 introduces fat-tailed shocks in the model of Kato and Nishiyama (2005). This is a simple new Keynesian model where the central bank explicitly considers the zero lower-bound constraint on interest rates. We find that shocks with `excess kurtosis' make monetary policy relatively more aggressive far away from the zero lower bound region though, this difference reverts when the economy is close to this constraint. Under our baseline calibration, the difference between optimal policies under Gaussian and fat-tailed shocks is not quantitatively significant.
Chapter 4 presents a model in which investors form their expectations in an adaptive way to price bonds, in the spirit of Adam, Marcet and Nicolini (2011). We follow different assumptions regarding the learning process followed by agents. In the case of finite maturity bonds, the knowledge of the pricing of the first maturity will act as an 'anchor, limiting the price volatility of bonds with short maturities. As the maturity increases, the price volatility converges to the one of the consol bond. Chapter 5 surveys the literature on imperfect information, learning and the yield curve.
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