Essays on Macroprudential Policies, Global Financial Spillovers and Immigration

This thesis presents three chapters on assessment of macroprudential policy (Chapter 2 and Chapter 3) and immigration (Chapter 4). Chapter 2 assesses the effectiveness of Macroprudential Policy (MaP) and Unconventional Monetary Policy (UMP) in Emerging Market Economies (EME). We use a New Keynesian DSGE model with financial frictions and banks á la Gertler and Karadi (2011). We find that although both policies
are effective in dampening the effects of the credit constraint, the welfare gains of households are higher under MaP. Chapter 3 examines the effectiveness of MaPs in fostering financial stability within and across countries also using a New Keynesian two-country DSGE model á la Gertler and Karadi (2011). A key feature of our framework is the cross border bank lending between an EME and an Advanced Economy (AE). We find that capital requirements in AE mitigate financial shocks in both countries. A levy on cross border loans imposed by the EME’s central bank dampens the effects of the credit constraint domestically. We also show that the coordination of MaPs across countries is highly effective in mitigating financial shocks in both jurisdictions, resulting in substantially higher welfare gains. Chapter 4 discusses the impact of immigration on the labour market and the macroeconomy in the host economy. Using a DSGE model, we extend Canova and Ravn (2000b) and Fusshoeller and Balleer (2017) in two directions by incorporating (i) three skill levels of occupations: high-skilled, medium skilled and low-skilled, and (ii) capital-skill complementarity between physical capital and high-skilled workers. Using the capital-skill complementarity model, we show that under an immigration shock, high-skilled and medium-skilled workers achieve welfare gains and low-skilled workers experience welfare losses. After the shock, the host economy grows faster, investment increases substantially while output per capita decreases slightly.