| The first essay presents evidence that supports the direct link between institutional quality (law and order, government stability, etc.) and the cyclicality of monetary policy. It formulates a DSGE model in which the cyclical properties of monetary policies and the volatility of business fluctuations are the result of the interaction of institutional quality and the discretionary behavior of central banks. If there is a positive demand shock, we observe an increase in output and a real appreciation. If IQL is low, the economy attracts fewer loans to domestic consumers in the steady state. This implies that the reduction of the real value of the debt caused by the real appreciation is smaller. The real appreciation leads to a fall in consumption and an expansion of the labor supply. Wages drop and inflation diminishes. The central bank reacts by cutting its policy rate to stabilize inflation and thus generates a procyclical policy.;The second essay finds a U-shaped relationship between the US current account and its GDP cycle. That is, when output is above (below) its long-run level, the current account and detrended output are positively (negatively) correlated. This fact is robust to different measures of external imbalances and econometric specifications. We propose a DSGE model with asymmetric adjustment costs of capital to account for this behavior. The model is not only capable of replicating relatively well this asymmetric link but also the main features of the cyclical behavior of the US economy.;Using a TAR model, the third essay explores the main determinants of the US current account and tests threshold dynamics related to the size and sign of the external imbalance. Our findings are: (1) significant determinants are the relative income, GDP growth, fiscal imbalance, and the real exchange rate; (2) there exist two regimes: a "surplus" and a "deficit" regime; consequently, the sign --but not the size-- of imbalances matters; (3) relative income shocks deteriorate significantly the current account only under the deficit regime, and (4) there is evidence that supports the "twin-deficit" hypothesis in each regime. |
