Essays in International Economics.

This dissertation analyzes how trade openness affects a country’s set of policy instruments in times of economic crises. Exploiting variations across Estonian firms trading with different mar- kets, the first chapter shows that firms’ output substantially reacts to exchange rate movements in both their export and import market. Still, the estimated trade elasticity implies that monetary policy is equally effective in closed and open economies because traded and non-traded sectors expand by equal amounts following a monetary expansion. The second chapter shifts the focus on fiscal policy and examines the effects of austerity on economic performance since the Great Recession. In a panel of 29 mostly European countries it shows that reductions in government purchases larger than that implied by reduced-form forecasting regressions are statistically associated with lower real per GDP and lower inflation. The implied multiplier is greater than 1, which shows that fiscal policy has strong domestic effects even in small and open economies. A multi-country DSGE model calibrated to the European economies replicates the qualitative features of the observed patterns, but falls short quantitatively of the multiplier on government purchases. The last chapter analyzes macroeconomic policies to promote mergers and acquisitions (M&As). A tractable model is developed to study the role of M&As during financial crises characterized by tighter bank lending standards. It suggests that cross-border M&As can be particularly beneficial because they help to tap foreign capital markets, while domestic M&As have a much smaller effect because domestic acquirers themselves face liquidity constraints. Being open can therefore be a virtue during times of tight domestic credit markets.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/133370/1/proechri_1.pd