NEMATODO DE BULBO Y TALLO 1 Ditylenchus dipsaci (Kuhn)

The main results can be summarized as follows:

1. An open economy macro model with two sectors and incomplete nancial market perturbed by productivity, preference and signi cant interest rate parity disturbances can account for observed puzzles of international nance literature, including lack of interna- tional risk sharing. Signi cantly perhaps there is no necessary role for various forms of price rigidities here. What is key is that the coupling of a nancial friction with expec-

tational errors in the interest rate parity condition may provide a promising direction for resolutions of these puzzles (see Charles Engel, 2001, NBER Macroeconomics Annual);

2. A macro- nance model of yield curve under expectation hypothesis is in general not compatible with observed yield curve dynamics of the level of the term structure, but less so for yield curve slope, making it a good candidate for signalling business cycle uctuations. That the DSGE models can t the slope rather than the level may be related to the inability of these models to deal with time variation of expected steady states.

3. Labour reform such as UK in 1980s is likely to have lead to more ef cient monetary policy transmission. But signi cant rigidities remain with employment adjusting slowly to shocks, and in such a world I suggest that policy needs to be attentive to recessions, as the search may persist for a long time period. To some extent this nding may alter the terms of trade in monetary policy for pursuing in ation targeting at the expense of output - the trade-off my not be quite so clearly in favour of price stability.

4. Orthodox monetary policy treats the evolution of the money stock as being closely tied to equilibrium outcomes on output and the price level. In this sense, observations on the money stock are unlikely to explain much about the future evolution of nominal output. But actual data suggests supply shocks, for example originating in nancial sec- tor loan production or innovation, play a signi cant role broad money balances over the short- to medium-term, therefore traditional in ation-targeting monetary policy might be inappropriate. In the period of global monetary easing, in the early part of this decade, the

Federal Reserve did not seem to respond so obviously to supply shocks but Bank of Eng- land and European Central Bank seem to, at least with some efforts, try offsetting such shocks.

On methodological side, there are two contribution in the thesis:

5. Unconditional second moments have been used to develop a new set of procedures for model evaluation and selection. The method features great exibility and simplicity but works fairly well with the DSGE models explored here.

6. Finally, I repeat the shock identi cation procedure with Uhlig's (2005), among oth- ers, Bayesian VAR, adding to the existing literature on DSGE model identi cation.

6.2 Limitations and suggestion for future research

The complete research agenda is based on loosely organized topics in the chosen eld, taking DSGE models to data of macro- nancial variables. Without a rm key question, the whole research work suffers from inconsistency, especially the modeling technique. However this is due to the various macroeconomic puzzles I wish to resolve.

Some other shortcomings of the dissertation should be noted as well. First of all, as the main contribution, the new distance approach for model evaluation and selection is worthy of further robustness check on its properties and ability to uncover better models. In the current version, the six alternative metrics were either a rule-of-thumb type indicator or borrowed from other literature. Without an in depth understanding of it statistical proper- ties, especially in a misspeci ed model, the model selection exercise may lead to incorrect

inference. Some further work on the robustness of these tests is required but for reasons of space, such analysis is beyond the scope of my thesis. Separate work should be conducted on this promising empirical tool, perhaps with only the Kullback-Leibler information cri- terion (KLIC), as suggested by Watson (1993). The distributional assumption is in line with comparable empirical approaches and the concept of “information loss” is straight- forward. An advantage of KLIC is the possibility to develop a “stronger interface”, such as a distance band, by utilizing data variability in the model simulation.

Although the distance approach has successfully indicated the best case for the open economy model and NKPC model, there are other concerns on the validity of such com- parison between candidate models. In the open economy case, we compare only a sub- block of the variance covariance matrices. Candidate models have different numbers of exogenous shocks. These issues need to be justi ed in a structured research of the method- ology. In the NKPC chapter, the method is used to ne-tune the magnitude of exogenous shocks. These attempts to improve model's empirical t may raise criticism due to lack of thorough justi cation of the distance measure approach. For instance, the sub-block problem might be resolved by incorporating a weighting matrix; simulation analysis can be conducted for misspeci ed models.

By construction, DSGE is a parsimonious framework so that a full-scale model t can be very dif cult. However, based on the proposed unconditional second moments method, model complexity is no longer the main issue. In chapter three through to ve, more

model features can be incorporated. For chapter three, a macro- nance yield curve can be constructed by revising the pure expectation hypothesis and considering investment habitat of bond as a nancial shock. By doing so the yield curve curvature and level might be better explained.

In chapter four, the very slow response of unemployment is still a puzzle. Apparently further rigidity in labour market is required. Also speci cation of monetary policy could be modi ed to capture both in ation targeting and nominal income targeting, as opposed to the simple quantity rule in current version. It could very well be that some interaction of shocks may further help understand these dynamics: consider a reduction in credit avail- ability combining with higher levels of unemployment to help explain large falls in output during recessions.

Chapter ve has shown the distinctive policy stand confronting supply shock of money markets. This would be an important ndings if it can also be observed in an DSGE model. Liquidity provision and various interest rate could be incorporated in a New Keynesian framework, such as Goodfriend and McCallum (2007) or that of Chadha and Corrado (2009), to address empirical distinction among US and EU data, as European Central Bank's two pillar principle provides a benchmark for such analysis.

Simulation based DSGE research is a wonderful world when computation burdens have been relaxed. And, rather like theoretical physics, the worlds created are magical, tractable and consistent from micro-foundations to superstructure. For a reasonably long time,

DSGE macroeconomists have limited their analysis to the laboratory environment. How- ever, recent years have seen more and more DSGE research work that contribute to a better understanding of aggregate macroeconomic and nancial behaviour and thus may shed light on monetary policy making. And my PhD research is dedicated to this direc- tion. Given the events of the past two years since the onset of the nancial crisis, I can think no more laudable aim.