Download or read book Essays on International Asset and Goods Trade written by Meixin Guo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In contrast with goods market frictions, the role of financial market frictions is not well understood in the international macroeconomics literature. My dissertation research incorporates both financial and goods market frictions in a general equilibrium model, and identifies their significant roles in determining the levels of consumption risk sharing, asset holdings, and goods flows across countries. The first chapter provides evidence on the significance of financial frictions in explaining the lack of international consumption risk sharing in a multi-country framework with heterogeneous country preferences, in addition to goods market frictions. The hierarchical Bayesian method is used to estimate the gravity equations on bilateral imports for a group of 22 OECD countries during 1970-2000. This method can control for the large dimensionality of the parameter space and reduce the size distortion of the likelihood ratio test based on standard panel least squares regressions. The second chapter focuses on how the hierarchical Bayesian method can help resolve the debate on the choice of different dummy variables in the high dimensional gravity equation literature, where estimates of key parameters can vary considerably depending on the ways in which fixed effects may be included. I estimate the Euro Zone effect and European Union effect on import for 22 developed countries during 1980-2004, a case used previously by Baldwin and Taglioni [2006]. The Bayesian results show that the model with time-invariant importer and exporter dummies is preferred. The third chapter, coauthored with Huiran Pan, provides more information about the effect of financial frictions on U.S. imports and foreign equity holdings from 2001 to 2008 for a group of 44 countries, along with traditional trade costs. Using an IV-Tobit model to control for endogeniety problem and many zero values in the data, we find significant negative effects of financial frictions on U.S. equity holdings and imports. The effects are more prominent for sectors with high financial dependence, high asset tangibility, high short-term debt interest repayment constraint, and countries with high interest spreads.