Three essays in applied macroeconomics

This thesis examines various aspects of business cycle fluctuations, a central topic in macroeconomics. Short-term economic phenomena are analyzed both theoretically and empirically. In order to carry out the examinations, dynamic stochastic general equilibrium (DSGE) models, both of the Real Business Cycle (RBC)- and of the New Keynesian (NK) type, are employed. These models have been firmly established as the main workhorse of business cycle analysis within the last two decades. Chapter one addresses the effects of fluctuations on welfare in an international context. Specifically, using a two-country DSGE model, the influence of financial markets integration on the welfare properties of different exchange rate regimes are investigated theoretically. In chapter two, the interaction between unanticipated monetary and fiscal policy measures – so-called monetary and fiscal policy shocks - are analyzed in a small open economy (SOE) DSGE model. Data from Australia, Canada, the UK and the US are used to estimate the correlation coefficients between monetary and fiscal policy shocks and to examine the effects of these correlations on the volatilities of output growth and inflation. To carry out the estimations, a Bayesian Markov Chain Monte Carlo (MCMC) approach is applied. The implications of the estimated correlation coefficients for the variances of output growth and inflation, in turn, are assessed by virtue of simulations of the estimated models. Finally, the third chapter examines the crisis of the Swiss economy during the 1990s using the business cycle accounting (BCA) method proposed by Chari, Kehoe, and McGrattan (2007).