Essays in macroeconomics: Information and fiscal policy

This dissertation can be divided into three parts. Chapter 1 studies time-varying uncertainty within a dynamic stochastic general equilibrium (DSGE) model. It extends the neoclassical growth model along two dimensions: First, time variation in uncertainty arises from a regime switch in information flows such that the precision of signals regarding future economic fundamentals can change. Second, the effect of uncertainty is amplified through an irreversible investment channel. Simple theory makes the two expectation effects from anticipated shocks and irreversible investment transparent. Quantitatively, the model matches U.S. business cycle data well in that it can 1) produce positive output in response to good news; 2) provide an alternative source of stochastic volatility; and 3) generate an asymmetric business cycle.;Chapter 2 finds external financing of government spending matters for the fiscal multiplier when international capital mobility is limited, as featured by most developing countries. While external financing mitigates the crowding-out effect of government spending, it can generate real appreciation, which contracts traded output and lowers the fiscal multiplier in the short run. Also, government spending is more expansionary with more home bias in government purchases and a less flexible exchange rate. Whether the twin-deficit hypothesis holds depends crucially on the degree of external financing of fiscal deficits.;Chapter 3 studies fiscal policy effects in developing countries with external debt and sovereign default risk. State-dependent distributions of fiscal limits are simulated based on macroeconomic uncertainty and fiscal policy specifications. The analysis indicates that expected future revenue plays an important role in the observed low fiscal limits of developing countries relative to those of developed countries. External debt also carries additional risk as large devaluation of the real exchange rate can suddenly raise default probabilities. Fiscal consolidations are counterproductive in the short and medium runs, but growth under a faster consolidation eventually outpaces that under a slower one. When an economy approaches it fiscal limits, government spending can be less expansionary.