Three essays in international economics

This dissertation explores three different issues in International Economics. In the first essay, we study how the world interest rate and domestic default risk could affect domestic welfare, and hence exchange rate commitment. We conclude that a fixed exchange rate regime is easier to commit to when volatility of international interest rates is lower, and the exchange rate risk premium is lower. Furthermore, when agents perceive the potential switch of regimes, the intervals of volatility of international interest rates and domestic output volatility that could maintain policy maker's credibility, become narrower.; The second essay uses a random coefficient frontier production function model to examine the sources of growth in four East Asian economies. The economies are Hong Kong, Singapore, Japan and South Korea, and the period covered is 1987–93. We use data for 20 manufacturing sectors at the 3-digit SIC level. This study also provides the first comprehensive examination of sources of growth, which allows one to decompose total factor productivity growth, separating out technical efficiency changes from technological progress. We find that there is ample evidence of the importance of increasing inputs in growth, and also some support for technical efficiency change, or catching up to the frontier over this period, there is only weak or even contrary evidence for the role of technological progress, as measured by a shift in the estimated production frontier.; The third essay develops and calibrates a stochastic VAR model to explore one feasible solution to the Feldstein-Horioka puzzle on saving-investment correlation. The basic framework is in the tradition of an intertemporal approach. We conclude from simulations that the degree of intertemporal substitution of consumption is important to determine the magnitude of consumption, and hence the magnitude of the current account in response to external shocks. Lower intertemporal substitution of consumption contributes to a higher saving-investment correlation even under high capital mobility. While the adjustment cost can lower the volatility of the current account in response to external shocks, it significantly influences both the volatility of investment, and the covariance of the current account and investment. As a result, the high adjustment cost may lead to a low saving-investment correlation.