Essays in International Macroeconomics

This thesis is composed of two parts. Part I contains two essays on capital flows and, in particular, on the phenomenon of global imbalances. Part II includes an essay on the determination of exchange rates. In the first part, I provide a framework to analyse the trade imbalances between the United States and East Asian countries. In a two-country OLG model with production, I investigate the
relationship between East Asian economies' high propensity to save and global imbalances. It is suggested that the absence of pay-as-you-go pension systems can rationalize the saving behaviour of emerging economies and capital outflows to the United States. The model supports the view that there is a "global saving glut" in the world economy. The analysis implies that the introduction of a pay-as-you-go system in China would have the effect of reducing the imbalances.

In Chapter 2, I propose a two-country model to capture output per capita inequalities across countries. My motivation is that global imbalances involve countries at different stages of development. Consistently with empirical evidence, I assume that the East Asian country has a higher capital share in the aggregate production
function. The analysis shows that technological differences
provide incentives for capital to flow to the developing country. Given that the net foreign assets position of the United States is negative, I conclude that differences in social security systems is the most important basis for trade between the two countries.

In the second part, I develop a theory of nominal exchange rate determination. The model under study is a stochastic OLG economy with multiple currencies and goods. Currencies serve as stores of value and are also required to buy the country-specific good. Portfolios and nominal exchange rates can be pinned down at the stochastic steady state. The model makes a first step towards understanding changes in countries' net foreign assets positions as due to both portfolio adjustments and valuation effects driven by fluctuations of nominal exchange rates.