ESSAYS IN MACROECONOMICS

Author

Olaniyi Stephen Ige, Southern Illinois University CarbondaleFollow

Date of Award

8-1-2024

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Becsi, Zsolt

Abstract

The first Chapter investigates Purchasing Power Parity (PPP) price convergence across U.S. states using a 1963-2018 panel dataset. We focus on precise measurements of the convergence rate towards PPP. The methodological sequence includes a benchmark AR (1) model, corrected for cross-sectional dependence and assessments for cross-sectional heterogeneity, yielding a more rapid rate of convergence via unbiased estimations of price level convergence. Specifically, in our major price-level indicator, we find a mean reversion rate of 3.29 years after correcting for cross-sectional dependence, as against 12.12 years before the correction. In addition, we examined the possibility of some states in certain region exhibiting faster price convergence relative to the others. We find a slower convergence rate in the Northern states relative to Southern states. Chapter two investigates the transmission of monetary policy into financial markets during the COVID-19 pandemic, examining the impact on interest rates, exchange rates, stock market indices, and long-term government bond yields across 17 advanced economies. Leveraging panel data spanning from 2002 to 2022, we employ interacted panel vector autoregression (PVAR) methodology to analyze differences in policy transmission between the pandemic period and normal times. Our findings indicate that the emergence of pandemic has weakened the transmission of monetary policy to financial markets to a large extent. Thus we see a notable difference in the effectiveness of conventional monetary policy during the pandemic, with policy rate changes exhibiting diminished impact on financial market variables compared to normal times. We attribute this divergence to heightened uncertainty, cautious investor behavior, and the unprecedented economic complexities brought about by the pandemic. Chapter three examines the persistence of productivity shocks across different U.S. states, employing the autoregressive coefficient to measure the extent to which past productivity levels influence current levels. The methodological sequence includes a benchmark AR (1) model, correction for cross-sectional dependence via the Dynamic Common Correlated Effects Model (DCCE), and assessments for cross-sectional heterogeneity. Our analysis reveals significant variation among states, with Pennsylvania displaying very high persistence and Virginia much lower persistence when using Minnesota as the numeraire. We also examine the half-life of productivity shocks, defined as the time required for the impact of a shock to reduce by half. Pennsylvania's half-life of 22.34 years suggests highly persistent shocks, whereas Virginia's 0.76 years indicates rapid dissipation. Minnesota's half-life is 1.93 years, providing a reference point for the comparison.