ESSAYS IN NONLINEAR MACROECONOMIC MODELING AND ECONOMETRICS

This dissertation consists of three essays in nonlinear macroeconomic modeling and econometrics. In the first essay, we decompose oil price movements into oil demand (stock market) shocks and oil supply (oil-market) shocks, and examine the response of the stock market to these shocks. We find that when oil prices are “net-increasing”, a stock market shock that causes the S&P 500 to rise by one percentage point will cause the price of oil to rise approximately 0.2 percentage points, with a statistically significant positive effect one day after the stock market shock. On the other hand, the response of the stock market to an oil market shock is a decline of 6.8 % when the price of oil doubles. For other days, the initial response of the oil market to a stock market shock is the same as in the net oil price increase case (by construction). We then analyze the response of monetary policy to the identified stock market and oil market shocks and find that short-term interest rates respond to the stock market shocks but not the oil market shocks. Finally, we evaluate the predictive power of the decomposed stock market and oil shocks relative to the change in the price of oil. We find statisticall