Essays on international macroeconomics

This dissertation concerns three topics in international macroeconomics, including cyclical wage movements, exchange rate volatility and sovereign debt crises.; Chapter one documents that, at the aggregate level, (i) real wages are procyclical and lag output by about one quarter in emerging markets, while there are no systematic patterns in developed economies, (ii) real wage volatility (relative to output volatility) is twice as high in emerging markets compared with developed economies, and (iii) real wage volatility decreases with the level of financial development. I then present a model of contractual arrangements between workers and employers in a small open economy that helps explain this contrast. Only employers have access to financial markets in the model, but they need to borrow working capital to pay for labor costs before production is carried out. The idea is that countercyclical interest rates and less developed financial markets in emerging markets make it less optimal for employers to provide workers with relatively stable wages, leading to more volatile and procyclical wages. This is further demonstrated by calibrating the model using data from Mexico and the U.S.; In Chapter two, I provide a two-country general equilibrium model that addresses the excessive exchange rate volatility and "exchange rate disconnect" phenomenon. Specifically, a positive transaction cost associated with trading foreign currency denominated bonds gives rise to an equilibrium, in which the nominal exchange rate is partially determined by a non-fundamental stochastic process. Additionally, with non-tradable goods and distribution costs, the international relative price movement does not completely offset the nominal exchange rate fluctuation. Simulating the equilibrium shows that real effects of the exchange rate on output and consumption can be small.; Chapter three shows that the stock market depreciates by an average of around 94% in the preceding two years before the debt crisis. As almost half of debt crises were typically preceded by currency crises, after controlling for the market anticipation for the currency crisis, the drop in stock market index is still significant. The result suggests that the stock market forecast lower GDP growth and less future net resource transfers in the event of debt crises.