Essays in Empirical Macroeconomic

This dissertation addresses two questions surrounding economic expectations and one question in international finance.;The first chapter addresses a specific question about the expectation formation process. In a full information rational expectations world, agents immediately respond to shocks. In reality however, there are often large delays after shocks. There is an extensive literature on the information flow that attempts to explain this. Some of the literature explains the delay with uncertainty about the future and some with information rigidity. This chapter estimates the extent of both types of delays at the aggregate and individual level with a novel approach. The results show that the delay is substantial, and it is largely driven by uncertainty.;The second chapter addresses how consumers form their expectations about inflation. In the past few years, the inflation rate reported by consumer surveys like the University of Michigan Surveys of Consumers has been significantly above the official US consumer price index (CPI) published by the Bureau of Labor Statistics (BLS). This chapter finds that almost half of this discrepancy can be attributed to the different weights underlying the two measures. Indeed, applying a weighting to the survey that is very close to the CPI weighting reduces the apparent over prediction of inflation over 30 years by 0.25 percentage points per year. This contribution to the difference captures the difference between the inflation rate of the average consumer and the average of the inflation rates of individual consumers. It is thus much larger than previously estimated and therefore the CPI cannot be used to obtain accurate inflation estimates for subpopulations.;The third chapter introduces a new driver of international net capital flows. The standard consumption capital asset pricing model (CCAPM) is modified to create persistent net capital flows that are linked to the cyclical correlation between countries. Specifically, some countries' endowments are more valuable as risk insurance than others', leading countries with unfavorable productivity correlations to exchange current consumption for shares of other countries' endowments. The model predicts a negative relationship between net capital inflows and the correlation of countries' productivity growth rates with global productivity growth. The clear empirical evidence presented in the chapter shows a strong link between the cyclical flows as measured by total factor productivity growth and net capital flows. This link can also help explain the Lucas puzzle, because portfolio diversification considerations play an important role in determining net capital flows.