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Title page for ETD etd-06082018-100442


Type of Document Dissertation
Author Cheng, Dong
URN etd-06082018-100442
Title Essays on the Role of Durables and Financial Frictions in Business Cycles and International Trade
Degree PhD
Department Economics
Advisory Committee
Advisor Name Title
Mario J. Crucini Committee Chair
Atsushi Inoue Committee Member
David C. Parsley Committee Member
Gregory W. Huffman Committee Member
Hyunseung Oh Committee Member
Keywords
  • Automobile
  • International Trade
  • Housing Prices
  • Business Cycles
  • Durables
  • Financial Frictions
Date of Defense 2018-05-28
Availability restricted
Abstract
Financial frictions are important features of the economy and yet their role in shaping business cycle dynamics and the pattern of international trade is incompletely understood. The role of financial friction is even more crucial when durables are explicitly built into the macroeconomic models because they are big-ticket items. Durables also amplify business cycles through the stock-flow relation because a given percentage change in the desired stock requires a much larger percentage change in the flow. In the globalized world, trade flows, especially durables, are substantially more volatile than domestic economic aggregates like GDP. Therefore, investigating the role of durables and financial frictions in closed and open economy settings is very important for understanding economic fluctuations and trade dynamics. Using rich microeconomic and historical data, this dissertation proposes new empirical and theoretical approaches to quantify the importance of durables and financial frictions in three different settings. The first chapter explores the response of non-shelter consumption to shocks from the housing sector, where homes are durable goods that have the unique feature that they also serve a collateral for loans. We develop a novel instrumental variable for local housing price movements to achieve identification. We pay close attention to the role of collateral constraints and show that their presence increases the consumption response. In the second chapter, we investigate the diffusion of a durable good, the automobile, from the United States to the rest of world through international trade. We collect archival data to document the diffusion pattern, and then rely on international price frictions, including markups, tariffs, trade costs, and the Penn effect, to explain the much lower adoption rates of automobiles abroad, compared to the U.S. The third chapter examines the heterogeneous and time-varying effects of finance on firms' exporting performance. We apply panel-data DID and DDD methods to comprehensive microeconomic data from China's manufacturing sector. We show that both internal and external finance have positive impacts on the intensive margin of firms' exports when firms switch from indirect to direct exporting, and even larger positive impacts when the switch occurs in the post-WTO accession period during which government restrictions on direct exporting was removed.
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