Essays in Open Economy Macroeconomics

Abstract

This dissertation is comprised of three chapters in applied open-economy macroeconomics. The first chapter examines the autonomy of domestic monetary policy in the context of the renowned macroeconomic policy trilemma in open economies. The contribution is in using a time-varying parameter methodology that examines the dynamics of monetary policy independence over time and thus improves on existing literature that only provides a single estimate for the coefficients of interest, whereas it is shown that these coefficients significantly change over time as countries exhibit different exchange rate regimes and capital mobility positions, especially during the post Bretton-Woods period. The second chapter uses the Autoregressive Distributed Lag technique to investigate the exchange rate disconnect puzzle and examines how exchange rates are determined by fundamentals such as output, money supply, interest rates and prices in the context of the monetary approach to exchange rate determination. Finally, chapter three examines the effects of exchange rate depreciation on the trade balance in the case of a small open economy; Egypt using three different methods; namely the Marshall-Lerner condition, the J-curve, and the S-curve.