Essays in international finance and business cycle analysis

The dissertation consists of two chapters, each focusing on a different aspect of the macroeconomy. Chapter One touches on the global macroeconomy by investigating the impact of real and nominal disturbances on the exchange rates between the U.S. and other G7 countries. Chapter Two turns the attention inward to the domestic macroeconomy through an analysis of different time-series models and their ability to reproduce business cycle features illustrated by real gross domestic product (GDP).;Economists often speculate that monetary (nominal) shocks play a major role in the erratic and unpredictable movements of exchange rates. Some suggest such effects on the exchange rate are large, while others disagree. In Chapter One, I address this issue by using long-run restrictions to identify a variety of real and nominal macroeconomic shocks and evaluate their relative importance for exchange rate fluctuations. Results for the U.S.-U.K. bilateral exchange rate show that monetary shocks account for only a small fraction of the variance of the real exchange rate. Instead, real "taste shocks" that can be associated with the degree of trade openness, terms of trade, and current account appear to be the key factor driving the dollar-pound real exchange rate. Results for other countries under consideration (Canada, Germany, and Japan) are similar.;Model evaluation has always been on the forefront of economic research. As modeling techniques advance over time, a wide variety of models have sprung up to satisfy the different needs of economists. It is therefore important to establish an efficient and reasonable approach to model comparison and evaluation, including when models are non-nested. In Chapter Two, we consider the ability of time-series models to generate simulated data that display the same business cycle features which characterize U.S. GDP. Our analysis of multivariate linear models and univariate linear and nonlinear models allows us to investigate the extent to which multivariate information can account for the apparent univariate evidence of nonlinear dynamics in GDP. We find that certain nonlinear specifications yield an improvement over linear models in reproducing business cycle features, even when multivariate information is taken into account in some of the linear models.