Source: Dissertation Abstracts International, Volume: 76-09(E), Section: A
Advisers: Max Croce; Patrick Conway
Thesis (Ph.D.)--The University of North Carolina at Chapel Hill, 2015
My dissertation work focuses on the relationship between asset pricing and macroeconomic policy. Asset prices play a fundamental role in the daily lives of most people as they face important choices about saving in the form of cash, bank deposits, bonds, stocks, or even real estate. Asset prices are connected to macroeconomic policy through monetary and fiscal policy's impact on interest rates together with taxation and government spending. The three projects within my dissertation focus on the policy implications of macro models that are consistent with financial market data and the channels through which policy impacts asset prices. Many previous studies have sought to determine the optimal behavior of monetary policy while abstracting from asset pricing considerations, and their predominant conclusion is that it is optimal for monetary policy to concentrate mainly on stabilizing inflation. In the first chapter, my contribution is to show that monetary policy puts more emphasis on stabilizing output compared to previous studies when the model replicates key features of financial markets. In the second chapter, I investigate the channels through which fiscal policy impacts financial markets using a news decomposition. I find that the effects are highly dependent upon the stance of monetary policy, and this is rationalized with a standard DSGE model. In the third chapter, I investigate the effects of monetary policy responding to government debt, and find there exists a significant trade-off between reducing inflation risk and increasing taxation risk
