Economics

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This is the collection for the University of Waterloo's Department of Economics.

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Essays on Innovation, Patents, and Econometrics
(University of Waterloo, 2010-08-03T18:18:48Z) Entezarkheir, Mahdiyeh
This thesis investigates the impact of fragmentation in the ownership of complementary patents or patent thickets on firms' market value. This question is motivated by the increase in the patent ownership fragmentation following the pro-patent shifts in the US since 1982. The first chapter uses panel data on patenting US manufacturing firms from 1979 to 1996, and estimates the impact of patent thickets on firms' market value. I find that patent thickets lower firms' market value, and firms with a large patent portfolio size experience a smaller negative effect from their thickets. Moreover, no systematic difference exists in the impact of patent thickets on firms' market value over time. The second chapter extends this analysis to account for the indirect impacts of patent thickets on firms' market value. These indirect effects arise through the effects of patent thickets on firms' R\&D and patenting activities. Using panel data on US manufacturing firms from 1979 to 1996, I estimate the impact of patent thickets on market value, R\&D, and patenting as well as the impacts of R\&D and patenting on market value. Employing these estimates, I determine the direct, indirect, and total impacts of patent thickets on market value. I find that patent thickets decrease firms' market value, while I hold the firms’ R\&D and patenting activities constant. I find no evidence of a change in R\&D due to patent thickets. However, there is evidence of defensive patenting (an increase in patenting attributed to thickets), which helps to reduce the direct negative impact of patent thickets on market value. The data sets used in Chapters 1 and 2 have a number of missing observations on regressors. The commonly used methods to manage missing observations are the listwise deletion (complete case) and the indicator methods. Studies on the statistical properties of these methods suggest a smaller bias using the listwise deletion method. Employing Monte Carlo simulations, Chapter 3 examines the properties of these methods, and finds that in some cases the listwise deletion estimates have larger biases than indicator estimates. This finding suggests that interpreting estimates arrived at with either approach requires caution.
Modelling the dynamics of commodity prices for investment decisions under uncertainty
(University of Waterloo, 2010-09-27T17:01:31Z) Chen, Shan
This thesis consists of three essays on commodity-linked investment decisions under uncertainty. Specifically, the first essay investigates whether a regime switching model of stochastic lumber prices is a better model for the analysis of optimal harvesting problems in forestry than a more traditional single regime model. Prices of lumber derivatives are used to calibrate a regime switching model, with each of two regimes characterized by a different mean reverting process. A single regime, mean reverting process is also calibrated. The value of a representative stand of trees and optimal harvesting prices are determined by specifying a Hamilton-Jacobi-Bellman Variational Inequality, which is solved for both pricing models using a fully implicit finite difference approach. The regime switching model is found to more closely match the behavior of futures prices than the single regime model. In addition, the optimal harvesting model indicates significant differences in terms of land value and optimal harvest thresholds between the regime switching and single regime models. The second essay investigates whether convenience yield is an important factor in determining optimal decisions for a forestry investment. The Kalman filter method is used to estimate three different models of lumber prices: a mean reverting model, a simple geometric Brownian motion and the two-factor price model due to Schwartz (1997). In the latter model there are two correlated stochastic factors: spot price and convenience yield. The two-factor model is shown to provide a reasonable fit of the term structure of lumber futures prices. The impact of convenience yield on a forestry investment decision is examined using the Schwartz (1997) long-term model which transforms the two-factor price model into a single factor model with a composite price. Using the long-term model an optimal harvesting problem is analyzed, which requires the numerical solution of a Hamilton-Jacobi-Bellman equation. I compare the results for the long-term model to those from single-factor mean reverting and geometric Brownian motion models. The inclusion of convenience yield through the long-term model is found to have a significant impact on land value and optimal harvesting decisions. The third essay investigates the dynamics of recent crude oil prices by comparing and contrasting three different stochastic price models, which are a two-state regime switching model, a two-factor model analyzed in Schwartz (1997) and a two-factor model examined in Schwartz and Smith (2000). Prices of long-term crude oil futures contracts are used to calibrate and estimate the model parameters. The performances of the two-factor models are comparable in terms of fitting the market prices of the long-term oil futures contracts and more closely match the behavior of oil futures prices than the regime switching model.
Three Chapters on the Labour Market Assimilation of Canada's Immigrant Population
(University of Waterloo, 2010-12-03T21:20:05Z) Su, Mingcui
The three chapters of my dissertation examine immigrant assimilation in the Canadian labour market. Through three levels of analysis, which are distinguished by the sample restrictions that are employed, I investigate immigrant labour force and job dynamics, immigrant propensity for self-employment, and immigrant wage assimilation, respectively. In the first chapter, I exploit recently-introduced immigrant identifiers in the Canadian Labour Force Survey (LFS) and the longitudinal dimension of these data to compare the labor force and job dynamics of Canada's native-born and immigrant populations. I am particularly interested in the role of job, as opposed to worker, heterogeneity in driving immigrant wage disparities and in how the paths into and out of jobs of varying quality compares between immigrants and the native-born. The main finding is that the disparity in immigrant job quality, which does not appear to diminish with years since arrival, reflects a combination of relatively low transitions into high-wage jobs and high transitions out of these jobs. The former result appears about equally due to difficulties obtaining high-wage jobs directly out of unemployment and in using low-wage jobs as stepping-stones. I find little or no evidence, however, that immigrant jobseekers face barriers to low-wage jobs. We interpret these findings as emphasizing the empirical importance of the quintessential immigrant anecdote of a low-quality "survival job" becoming a "dead-end job". The second chapter analyzes immigrant choice of self-employment versus paid employment. Using the Canadian Census public use microdata files from 1981 to 2006, I update the Canadian literature on immigrant self-employment by examining changes in the likelihood of self-employment across arrival cohorts of immigrants and how self-employment rates evolve in the years following migration to Canada. This study finds that new immigrants, who arrived between 1996 and 2005, turned to self-employment at a faster rate than the earlier cohorts and that immigrants become increasingly likely to be self-employed as they spend more time in Canada. More important, I examine immigrant earnings outcomes relative to the native-born, instead of within, sectors and thus explore the extent to which a comparative advantage in self-employment, captured by the difference in potential earnings between the self- and paid-employment sectors, can explain the tremendous shift toward self-employment in the immigrant population. The results show that the earnings advantage between the self- and the paid-employment sectors accounts for the higher likelihood of self-employment for traditional immigrants in the years following migration. However, the potential earnings difference cannot explain the reason that non-traditional immigrants are more likely to be self-employed as they consistently lose an earnings advantage in the self-employment sector relative to the paid-employment sector. My paper suggests that immigrants may face barriers to accessing paid-employment, or immigrants are attracted to self-employment by non-monetary benefits. Lastly, in the third chapter, studies which estimate separate returns to foreign and host-country sources of human capital have burgeoned in the immigration literature in recent years. In estimating separate returns, analysts are typically forced to make strong assumptions about the timing and exogeneity of human capital investments. Using a particularly rich longitudinal Canadian data source, I consider to what extent the findings of the Canadian literature may be driven by biases arising from errors in measuring foreign and host-country sources of human capital and the endogeneity of post-migration schooling and work experience. The main finding is that the results of the current literature by and large do not appear to be driven by the assumptions needed to estimate separate returns using the standard data sources available.
Time Allocation and the Weather
(University of Waterloo, 2012-07-31T18:54:43Z) Shi, Jingye
The overriding theme of my dissertation is the use of short-term weather fluctuations to study how people allocate their time across activities. In Chapter 1, a theoretical model is developed to distinguish malfeasant from legitimate forms of employee sickness absenteeism. In this model, individuals' marginal utility of indoor leisure is increasing in their sickness levels, while their marginal utility of outdoor leisure is an increasing function of the interaction of their health and the quality of outdoor weather. In equilibrium, sickness absenteeism occurs at both ends of the sickness distribution -- among the relatively sick and among the most healthy facing the best weather. The positive relation between marginal changes in weather quality and levels of sickness absenteeism in the workplace reflects the substitution of the inframarginal employees who are the least sick away from work activities towards outdoor leisure activities. The model in Chapter 1 suggests an empirical strategy to identify a shirking component in overall reported sickness absenteeism. Not only does this approach avoid attributing entirely legitimate forms of absenteeism to shirking, but unlike previous studies using employee dismissal rates, it is able to distinguish shirking activity whether or not that activity is detected by employers. In order to exploit exogenous weather fluctuations to identify shirking activity, we need a one-dimensional measure of weather “quality”. The primary objective of Chapter 2 is to construct a weather quality index that captures the influence of the weather on workers' preferences for outdoor leisure activity. The weather quality index takes into account the multifaceted nature of weather conditions, and measures how various weather elements -- temperature, humidity, precipitation, wind speed, and cloud cover -- come together to affect the propensity of employees to engage in high-utility outdoor recreational activities. The resulting index provides a ranking of different weather conditions in terms of their outdoor recreational values, which can then be used to capture the incentives of employees to shirk contractual work hours in response to purely exogenous weather changes. Chapter 3 empirically tests the existence of weather-induced substitution between work and outdoor leisure activities and examines how this type of behaviour varies across workers facing different shirking incentives. Linking 12 years of employee data from Canada's monthly Labour Force Survey (LFS), which queries reasons for employees' absences, to weather quality measured using the index constructed in Chapter 2, a clear positive relationship is found between the quality of outside weather conditions and short-term reported sickness absenteeism. Moreover, consistent with a key proposition of the theoretical model in Chapter 1, the empirical relation between weather and sickness absenteeism tends to be larger when existing shirking incentives are low, such as when sick pay is less generous and when probability of getting fired if caught shirking is high. There is, however, little evidence that firms are able to adjust shirking incentives through the payment of efficiency wages. Finally, Chapter 4 examines another type of substitution induced by weather shocks -- the substitution between outdoor and indoor physical activities. The Chapter begins with a theoretical model of the decision to participate in physical activities, which assumes that when adverse weather shocks deter outdoor physical activities, indoor physical activities are the only viable option for individuals to stay physically active. However, because the indoor options are more costly, substituting from outdoor to indoor physical activities is easier for higher-income individuals. This suggests an explanation for the stylized fact that rates of physical activity participation are low among lower socioeconomic groups. Linking time-use data from Canadian General Social Survey with archival weather data, the results of the empirical analysis in this chapter provides evidence of a positive income effect enabling substitution from outdoor to indoor physical activities when outside weather is not conducive for participating in outdoor activities. By exploiting the role that income plays in maintaining physical activity levels when less costly outdoor options are limited, this chapter formally illustrates a credible causal link between people's income levels and their participation in leisure time physical activities and provides direct evidence of this link. The results have important policy implications for promoting physical activities, especially among lower income population.
Essays in Risk Management for Crude Oil Markets
(University of Waterloo, 2012-10-22T17:05:46Z) Al Mansour, Abdullah
This thesis consists of three essays on risk management in crude oil markets. In the first essay, the valuation of an oil sands project is studied using real options approach. Oil sands production consumes substantial amount of natural gas during extracting and upgrading. Natural gas prices are known to be stochastic and highly volatile which introduces a risk factor that needs to be taken into account. The essay studies the impact of this risk factor on the value of an oil sands project and its optimal operation. The essay takes into account the co-movement between crude oil and natural gas markets and, accordingly, proposes two models: one incorporates a long-run link between the two markets while the other has no such link. The valuation problem is solved using the Least Square Monte Carlo (LSMC) method proposed by Longsta ff and Schwartz (2001) for valuing American options. The valuation results show that incorporating a long-run relationship between the two markets is a very crucial decision in the value of the project and in its optimal operation. The essay shows that ignoring this long-run relationship makes the optimal policy sensitive to the dynamics of natural gas prices. On the other hand, incorporating this long-run relationship makes the dynamics of natural gas price process have a very low impact on valuation and the optimal operating policy. In the second essay, the relationship between the slope of the futures term structure, or the forward curve, and volatility in the crude oil market is investigated using a measure of the slope based on principal component analysis (PCA). The essay begins by reviewing the main theories of the relation between spot and futures prices and considering the implication of each theory on the relation between the slope of the forward curve and volatility. The diagonal VECH model of Bollerslev et al. (1988) was used to analyse the relationship between of the forward curve slope and the variances of the spot and futures prices and the covariance between them. The results show that there is a significant quadratic relationship and that exploiting this relation improves the hedging performance using futures contracts. The third essay attempts to model the spot price process of crude oil using the notion of convenience yield in a regime switching framework. Unlike the existing studies, which assume the convenience yield to have either a constant value or to have a stochastic behaviour with mean reversion to one equilibrium level, the model of this essay extends the Brennan and Schwartz (1985) model to allows for regime switching in the convenience yield along with the other parameters. In the essay, a closed form solution for the futures price is derived. The parameters are estimated using an extension to the Kalman filter proposed by Kim (1994). The regime switching one-factor model of this study does a reasonable job and the transitional probabilities play an important role in shaping the futures term structure implied by the model.
Three Papers on the Effects of Competition in Engery Markets
(University of Waterloo, 2013-08-29T19:56:12Z) Choi, Wai Hong
This thesis comprises three papers examining the impact of competitive pricing or competition on participants in energy markets. The scope of each paper is narrow but focused, dealing with one particular aspect of competition in each market under study. It is hoped that results from these three studies could provide valuable policy lessons to public policy makers in their task to create or maintain competition in different energy markets, so as to improve efficiencies in these markets. The first and second papers examine the load shifting behavior of industrial customers in Ontario under real time pricing (RTP). Using Hourly Ontario Energy Price (HOEP) data from 2005 to 2008 and industry-level consumption data from all industrial customers directly connected to the transmission grid, the first paper adopts a Generalized Leontief specification to obtain elasticities of substitution estimates for various industry groups, while the second paper adopts a specification derived from standard consumer theory to obtain price elasticity estimates. The findings of both papers confirm that in some industries, industrial customers who are direct participants of the wholesale market tend to shift consumption from peak to off-peak periods in order to take advantage of lower off-peak prices. Furthermore, in the first paper, a demand model is estimated and there is evidence that the marginal effect of hourly load on hourly price during peak periods is larger than the marginal effect during off-peak periods. An important policy implication from the results of these papers is that while RTP is currently limited to industrial customers, it does have positive spillover effects on all consumers. The third paper uses a unique panel dataset of all retail gasoline stations across five Canadian cities from late-2006 to mid-2007 to examine the effect of local competition on market shares and sales of individual stations. The base empirical specification includes explanatory variables representing the number of same brand stations and the number of different brand stations within a 3km radius to identify brand affiliation effect. It is found that the number of local competitors is negatively correlated with market share and sales. More interestingly, a same brand competitor has a larger marginal impact on market share and sales than a competitor of a different brand. These findings suggest that additional local competition leads to cannibalization of market share among existing stations, rather than create new demand. Another implication is that relying only on the number of different brands operating within a geographic market could understate the competition intensity in the local market.
Female Labour Supply with Time Constraints
(University of Waterloo, 2013-08-29T20:35:22Z) Franceschi, Francesco
The Italian labour market seems unable to allocate a significant fraction of the working age population efficiently. The gap between the employment rate in Italy and in the other developed economies is foremost attributable to the low employment rates of youth, seniors and women. The low employment rates of these three groups are due to several factors limiting both labour demand and labour supply. For women in particular, constraints on the allocation of time play a crucial role in determining labour supply behaviour. In this thesis we try to understand how non-standard time constraints may affect the behaviour of women, and their labour supply in particular. In the first chapter we study how the constraints on work-schedules affect the time allocation of workers in Italy. For a large fraction of employed individuals the work schedule is very rigid, as a consequence of outdated industrial relations. In order to understand whether constraints on the work-schedule produce significant effects on the allocation of time of wage/salary workers in Italy, we exploit the intrinsic differences between them and self employed workers. In fact, one of the main features of self-employment is the greater control over the days worked and daily hours of work. We use the last wave of the Italian time use survey (2008-2009) to provide evidence that the distribution of hours of work of self-employed workers is much more dispersed than that of wage/salary workers and that average standard deviation of their daily minutes of work within a week is significantly larger. Then we show that self-employed workers respond more to shocks affecting the value of leisure. We show that on sunny days the increase of leisure and the reduction of work are significantly larger for self-employed workers. We address whether unobservable characteristics, such as preferences for leisure and for outdoor activities in particular, determine this differential response and find no evidence for this. We interpret the differential response to weather shocks as a consequence of the time constraints on work-schedules. This evidence is relevant for female labour force participation since in Italy a large fraction of women choose not to work because they would otherwise not be able to reconcile family and work responsibilities. In the second chapter we study the Added Worker Effect (AWE). The retrospective questions provided by the new labour force survey allow identification of transitions between labour market states in a 12 month time-window. Since we are able to identify the reason for the husband’s job loss, we distinguish between transitions associated with low or high income losses. We find that both the wife’s probability of joining the labour force and that of finding a job increase when the husband is dismissed or he is forced to quit his job for health reasons, two cases of usually high income losses. Moreover, we estimate the wife’s full transition matrix between labour market states and we find that the loss of a job by a husband increases the probability that his wife will enter the iv labour force. Finally, we provide some descriptive evidence that time constraints can also impact the magnitude of the AWE. Focusing on mothers with young children, we show that the estimated AWE is positively correlated with the regional provision of child care services. The third chapter is based on the time use files of the Canadian General Social Survey. We study how Sunday shopping deregulation changed the time allocation of women, with a particular focus on those with children. The empirical analysis relies on the provincial variation in the time of the policy change. Our results suggest that women with children, who usually face stringent time constraints, respond to the policy change by substituting weekday shopping with Sunday shopping. The amount of time these women save from doing shopping on weekdays allows them to increase their minutes of work. On Sunday, shopping increases at the expense of leisure. The main result of this chapter is that the labour supply of mothers may change even when non-obvious constraints on the allocation of time change.
Economics of Ramping Rate Restrictions at Hydro Power Plants: Balancing Profitability and Environmental Concerns
(University of Waterloo, 2014-08-01) Niu, Shilei
This thesis consists of three essays on the economics of ramping rate restrictions at hydro power plants. The first essay examines the impact of ramping rate restrictions imposed on hydro operations to protect aquatic ecosystems. A dynamic optimization model of the profit maximizing decisions of a hydro operator is solved for various restrictions on water flow, using data for a representative hydro operation in Ontario. Profits are negatively affected, but for a range of restrictions the impact is not large. Ramping restrictions cause a redistribution of hydro production over a given day, which can result in an increase in total hydro power produced. This affects the need for power from other sources with consequent environmental impacts. The second essay uses a real options approach to study the impact of ramping rate restrictions on hydro power plants. We consider the effect on profits from electricity generation in order to inform policy decisions about ramping rate restrictions. A novelty of the essay is in examining the optimal operation of a prototype hydro power plant with electricity prices modelled as a regime switching process. We show that profits are negatively affected by ramping restrictions. Interestingly for a large range of restrictions, profit is not sensitive to ramping restrictions. The results point to the importance of accurately modelling electricity prices in gauging the trade offs involved in imposing restrictions on hydro operators which may hinder their ability to respond to volatile electricity prices and meet peak demands. The third essay investigates the impact of ramping rate restrictions on hydro power plants using a three regimes model with multiple jump sizes. We consider how the multiple jump sizes among these three regimes affect the impact of ramping restrictions on the prototype hydro power plant. The numerical experiments provide further evidence that ramping restrictions have a larger impact when the expected variation in price is increased such as through an increase in the jump size which makes it desirable to change water release rates relatively frequently. In both non-stochastic and stochastic settings, these three essays have highly consistent results on the impact of ramping restrictions on the hydro station's profit. We observe profits are significantly affected (by less than 7% in essay one, by less than 10% in essay two, and by less than 9% in essay three) in the case of the most severe ramping constraints, but we also observe a range of less severe ramping restrictions over which profits are not substantially affected (by less than 2% in essay one, by less than 3% in essay two, and by less than 2% in essay three). Results from this thesis should facilitate the implementation of ramping rate restrictions for environmental and economic benefits.
The Role of Institutions on R&D, FDI, and Economic Growth
(University of Waterloo, 2014-09-24) Zelaya, Mauricio
This thesis broadly consists of three essays examining the impact of institutions on firm R&D, Foreign Direct Investment (FDI) activity, and economic growth. The focus of each paper is unique in its contribution. The first chapter examines the evolving role of domestic Intellectual Property Rights (IPR) in the context of increasing globalization, where the R&D incentives of firms are framed not only by the IPR regime in their home country, but also by the IPR in its export markets. This paper first reviews the literature related to the classical relationship between IPR and innovation. Contributing to the growing literature, this paper exploits the exogenous variation in partner IPR as a mechanism to interpret the causal impact of IPR on private sector R&D investments. By merging datasets on R&D, production, trade, and IPR to construct an export-weighted index of trade partner IPR by country-industry-year, this paper explores whether firms respond to trade partner IPR. After including numerous controls as well as industry, year, and country fixed effects, the results of this essay suggest a positive relationship between domestic IPR and private sector R&D. Similarly, the results also suggest that there is a positive and significant relationship between export partner IPR and domestic R&D activity. These results are further confirmed when constructing a firm-level export-weighted index of trade partner IPR from a unique Canadian firm-level export dataset. The results not only suggest a causal link between IPR and firm R&D, they also highlight the need to consider domestic IPR policy as but one piece of the IPR regime that firms face. The second chapter assesses the impact of democratization on corresponding economic growth. It is important as it is undeniable that political institutions, the quality of bureaucracy, mode of governance and an efficient rule of law should have a direct effect on per capita income and economic growth. The essay first reviews the academic literature related to democracy and economic growth, while discussing the characteristics associated with both democratic and non-democratic regimes. The analysis begins by employing an annual panel data consisting of 43 developing economies in Africa, Latin America, and Asia between 1970 and 1999. The results in this essay suggest that countries moving towards democracy experience lower levels of economic growth. These findings are robust across OLS, fixed effects, and IV estimates. More importantly, a more thorough analysis indicates that an over investment in public goods from democratic regimes may be driving these results. Furthermore, this research is the first to offer empirical evidence on the magnitude of differential effects that the type of governance has - whether a democracy or dictatorship - on country specific economic growth. Lastly, the final chapter examines the locational choices of multinational firms in the presence of political risk. Following a real options approach, the results suggest that the vertical integration strategy of firms divest from institutional uncertainty, while government officials combat domestic country risk by providing overly generous incentive packages to attract foreign investors. Furthermore, through a numerical example, our results suggest that tax credits may be a more suitable method to attract FDI, as FDI not only tends to respond more to changes in tax credits than investment subsidies, but it is also significantly less costly for the host government to implement.
Three Essays on Financial Modelling with Price Limits
(University of Waterloo, 2015-10-21) Lin, Xiao Yan
In this thesis, a class of clustered censored distributions are proposed in various financial modelling processes. In particular, the proposed distribution can accommodate many stylized (observed) phenomena across different stock markets, especially those with price limits. One main attractive characteristics of the proposed distribution is that it can capture the clustered behaviour of the data over certain continuous interval (while the traditional censored distribution can only allow the clusters to be on the bounds). The clustered censored distribution is developed and presented, to some extent, in a general way so that it can be transformed into other well-known distributions, such as the classical Normal distribution, one- (or two-) sided truncated distribution, one- (or two-) sided censored distribution, etc. The clustered censored distribution is further designed into some well-known financial modelling structures, such as Generalized Autoregressive Conditional Heteroskedasticity (GARCH, Bollerslev (1986)) process. We also investigate the potential applications of the proposed models in this thesis to risk management. Overall, there are three main chapters in the thesis. Chapter 1 introduces the fundamental theory and properties of the proposed clustered censored distribution. As a starting point, Normality is mainly considered in this chapter. Built on Chapter 1, Chapter 2 designs a GARCH process with the cluster censored Normal distribution (referred as GARCHCCN). The model performance is investigated via Monte Carlo experiments and empirical data. The risk implication is also discussed in Chapter 2. Chapter 3 consists of two dimensions of the extensions. Sections 3.1-3.4 extend the model using clustered censored heavy tailed distributions, such as Student-t and Generalized Error Distribution (GED), for a better performance in capturing the tail behaviour. Section 3.5 examines the dynamic spillover effects under the proposed model framework. There are 14 supporting appendices (A-N) mainly for proofs, tables and figures.
Three Essays in Labour Economics and Public Finance
(University of Waterloo, 2016-04-27) Legree, Scott
This three-chapter thesis evaluates the potential for two major government policy levers to influence income inequality in Canada: the tax and transfer system, and the labour relations framework. The first two chapters are concerned with estimating how tax-filers respond to changes in tax rates, and the extent to which governments are limited in raising income tax rates on higher income individuals to fund transfers to lower income individuals. The final chapter examines the possibility that governments can increase the bargaining power of labour unions through changes in labour legislation, and in turn, reduce wage inequality within the labour market. The elasticity of taxable income measures the degree of responsiveness of the tax base to changes in marginal tax rates. Recent Canadian estimates of this elasticity have found moderate elasticities for earners in the top decile, and high elasticities for earners in the top percentile (for example Milligan and Smart (2015) and Department of Finance (2010)). In Chapter 1, I explore the underlying mechanisms that generate the relatively higher estimates at the top of the income distribution. Using the Longitudinal Administrative Databank (LAD), I estimate elasticities for several sub-components of taxable income, such as earned employment income and total income. In contrast to other research, I find modest elasticities of taxable income, even within the top percentile. I demonstrate that elasticities estimated using the Gruber and Saez (2002) specification are sensitive to choices of weights. In Chapter 1, I find small elasticities not only for total and taxable income, but also for another very important income concept: employment income. Specifically, I find employment income elasticites of less than 0.07 for all income deciles. These elasticities, however, represent average estimates for heterogeneous workers who face different constraints and who have different incentives to respond to changes in tax rates. In Chapter 2, therefore, I estimate elasticities for different types of workers by dividing the sample by gender and by attachment to the labour force. Using the Survey of Labour and Income Dynamics (SLID), a survey with detailed information on labour hours and job characteristics, I find higher elasticities for female workers and for workers with a weaker attachment to the labour force. I test for robustness of the estimates by varying the income increment used to calculate the marginal effective tax rates (METRs), as well as varying the number of years between observations. A second-order benefit of Chapter 2 is it serves as a robustness check on the results of Chapter 1. That is, we reproduce the elasticity estimates for total income and taxable income from Chapter 1 with a different dataset, and find similar results. Chapter 3 turns to the potential role of labour relations reforms to influence Canadian income inequality. Labour relations policy in Canada, studied extensively for its impact on unions, has not been studied more generally for its role in income inequality. In this chapter, I provide evidence on the distributional effects of labour relations’ reforms by relating an index of the favorableness to unions of Canadian provincial labour relations laws to changes in industry-, occupation-, education-, and gender-specific provincial unionization rates between 1981 and 2012. The results suggest that shifting every province’s 2012 legal regime to the most union-favorable possible (a counterfactual environment) would raise the national union density by no more than 8 percentage points in the steady state. I also project the change in union density rates that would result in the counterfactual situation for several demographic subgroups of the labour force. While there is some evidence of larger gains among blue-collar workers, the differences across these groups are small and in some cases suggest even larger gains among more highly educated workers. The results suggest reforms to labour relations laws would not significantly reduce labour market inequality in Canada.
Three Empirical Essays on Job Training, Income Support Programs, and Household Debt
(University of Waterloo, 2016-04-29) Amery, Behnoush
This thesis consists of three essays examining the effects of education and job-related training on promotions and wages in Germany, the effects of a reduction in Unemployment Insurance duration on the likelihood of joining welfare in Germany, and examining the debt-asset and debt-income ratios across different income levels in Canada. The first chapter uses the German Socio Economic Panel (GSOEP) to investigate the relative impacts of education and job-related training on job promotions within different occupation levels. The panel data allow me to control for the confounding effects of unobserved, time invariant, individual specific characteristics, and unobserved temporal shocks. My findings suggest that the recent job-related training increases the probability of promotion to middle level occupations, but has no significant effect on promotion to high and executive level jobs and on the corresponding wage increase. This effect appears greater for women than men. Although men have, on average, a higher probability of promotion and corresponding wage increase, job-related training increases the likelihood of promotion for women more than men. Moreover, the job-related training raises the probability of promotion to middle level jobs for higher educated employees more than for lower educated ones. That is, job-related training complements the role of higher education in increasing the probability of promotion to middle level occupations. The second chapter uses the German Socio Economic Panel (GSOEP) to investigate how a reduction in the length of Unemployment Insurance (UI) benefits may affect the likelihood of joining a welfare program for the individuals who have used UI benefits in Germany. If the UI program is not helping to return the unemployed to employment, the UI users may transition to a welfare program such as Social Assistance (SA) which provides financial support to low income households. Any modifications in the UI system might affect this transition. The results show that a less generous UI system, in terms of a reduction in UI duration, as a result of the Hartz reforms in Germany, increases the hazard of joining welfare. Lastly, the third chapter uses the Survey of Financial Security (SFS) to calculate the ratios of average total debts to total income and assets across different income levels over three years of 1999, 2005, and 2012. The debt-income ratio increases for all income levels over theses three years. The average debt-income ratio for low-income households earning less than $40K is 4.3 in 1999 and 6 in 2012 suggesting that these households owe, on average, 4.3 dollars in 1999 and 6 dollars in 2012 for every dollar they earn. The debt-asset ratios have also increased for all income levels in 2005 compared to the ones in 1999, but this ratio has increased in 2012 only for income levels greater than $80K. The findings suggest that power of households to pay back their debts, specifically for low income households, decreases from 1999 to 2012. The main sources of the increasing indebtedness of Canadians over these years are found as the debts on mortgages on principal and non-principal residences.
The Effect of Technological Innovations on Economic Activity
(University of Waterloo, 2016-05-05) Oystrakh, Mykhaylo
In this PHD dissertation, the nature of technological shocks and their effect on economic activity are examined. The first chapter is dedicated to the analysis of general purpose technologies (GPTs) and their identification in the patent data. I argue that the previous literature has been identifying sub-technologies of a given GPT rather than the technology itself. Moreover, I argue that the quantity of active GPTs identified using the old methodology is substantially greater than theoretically possible. The first chapter of my thesis presents an alternative approach to the identification of a general purpose technology than the one used in the previous literature and provides an example of such a technology identified in the patent data. This technology is the microcomputer. The chapter examines its evolution, diffusion, and the effect it has on other patented technologies. The findings are in line with the theoretical GPT literature. In the second chapter of my dissertation, I examine the effect of a positive technology shock on aggregate hours worked. Compared to the previous literature, the novelty of the approach proposed in the current study comes from two directions: the choice of variables and the technique used to identify the technological shock. A patent-based measure is the main measure used to approximate the unobserved aggregate technological process. The second important novelty of the study is the use of the sign restriction Vector Autoregression (VAR) shock identification technique that is believed to be more robust than the alternative identification techniques used in the literature. The sign restrictions are determined using a general equilibrium model with skilled and unskilled labour featuring skill-specific and general technology shocks. The analysis shows that aggregate hours increase following both kinds of technological shocks. The results obtained in the study are robust to the technology measure used. When a patent-based measure is replaced with a production function residual measure the effect of the shock still improves the aggregate hours. Moreover, the results are robust to the way aggregate hours themselves are specified. Finally the results are supported when more conventional long run restrictions are applied on the VAR. However, with the long run restrictions it does matter how the aggregate hours are specified the same way it mattered in the previous studies. In the third chapter, I continue the analysis of the effect of a technological improvement on the labour market. In this study, I attempt to address the general criticism of the VAR methodology about the fact that only a limited number of variables can be processed. This limitation requires a researcher to make a choice in favour of certain variables and to justify this choice. Moreover, no matter which variables are chosen for the final modeling form, some information would still be excluded from the study. I overcome this limitation by incorporating factor analysis techniques into the VAR framework. I introduce Factor-tofactor VAR (F-FAVAR) that is an extension of the FAVAR approach that has already been succesfully used in the past.The F-FAVAR methodology allows an inclusion of a latent factor "impulse variable" besides the latent factor "response variables". As a result a large number of macroeconomic variables is examined and there is no necessity to exclude any of the variables. Moreover, there is no necessity to make a choice in favour of a particular measure of technology. All the relevant technological measures can be included into the model. As a result it is possible to examine the reaction of various economic and business variables to a technological shock. The reaction of the key economic variables to a technology shock is in accordance with the theory. The reaction of various labour measures to the shock was also examined. The results of the third chapter mainly support the findings of the second chapter about the positive effect of a technology shock on aggregate hours. In order to check the robustness of the results, instead of the F-FAVAR methodology, a simple FAVAR methodology was also used. For that methodology it was necessary to select a particular measure of technology to be included into the VAR model as well as to impose restrictions on the VAR. Several different technology measures with two alternative sets of restrictions were used. The results of the robustness analysis mainly support the findings of the F-Favar methodology.
Skill mismatch in the labour market
(University of Waterloo, 2016-12-02) Chen, Yu
This thesis contains three chapters on skill mismatch in the labour market. Chapter 1 provides a theory of ex ante skill mismatch, which we define as a situation where firms create jobs that workers search for and accept, even though they do not make the most productive use of their skills. The core idea is that, in the presence of asymmetric information about workers' outside options, the value of on the job search is higher for workers employed in such jobs. The theory provides new insights into the returns to education as well as the impact of on the job search on labour market mismatch. It also provides an explanation for the declining fortunes of educated American workers in recent decades. Chapter 2 studies a competitive search equilibrium with exogenous skill mismatch, where educated workers apply to routine jobs only if they face a high cost searching for cognitive jobs. The purpose is to examine whether a simple model with exogenous mismatch can explain the adverse labour market outcomes of educated workers. Under a negative shock to routine jobs, the model fails to generate a fall in the employment rate together with a decline in the job-to-job transition rate. Compared to endogenous mismatch equilibrium, an equilibrium with exogenous mismatch does not incorporate the trade-o between job finding rates and wages when unemployed workers choose to search in different job sectors. The comparison suggests that understanding the mechanism of skill mismatch is essential to understanding the labour market outcomes of educated workers. Chapter 3 shows that displacement of high-school workers from routine jobs can be understood as the labour-market response to an adverse selection problem. The adverse selection problem arises because employment contracts do not systematically discriminate against education, even though over-qualified ed workers are relatively more likely to quit routine jobs. The labour market equilibrium distorts the labour market outcomes of high school graduates by in efficiently increasing their wage at the expense of higher unemployment rate, in order to separate them from overqualified ed college graduates. In addition, the labour market response to the adverse selection problem creates a demand for post-secondary vocational education, which is valuable because it acts as an entry barrier that prevents college graduates from using routine jobs as stepping-stones towards better jobs.
Essays in Consumer Debt, Personal Saving Rate, and Household Insolvency in Canada
(University of Waterloo, 2017-01-24) Ghaziaskar, Mohamad
This thesis consists of three essays attempting to determine the key determinants of spending-saving behaviour and financial stability of Canadian households from both micro and macro economics. In the first chapter, we try to isolate and evaluate the socio-economic character- istics of households who accumulate debt by spending more than what they earn in a given year. In particular, with a focus on the right tail of spending distribution –households who tend to spend a larger fraction of their income– we use multivariate regression type analysis to isolate socio-economic factors that contribute to debt ac- cumulation and lead to insolvency. We aim to highlight the micro level factors that have contributed to the increase in the proportion of spender households in the population. Specifically, what are the marginal effects of age, income level, education, and family structure on the probability of a given households spends more than its income? Related to this question, we also consider the effect of budget allocation decisions on the probability of spending more than income and accumulating debt. We find that budget share of specific items in household consumption basket, has important information about the spending-saving behaviour of a household. Our analysis provides valuable information about what goods and services are the main outlays of expenditure for households in severe debt. The second chapter is about evaluating the relationship between household’s saving rate and its long-run income from a more technical perspective. This chapter is an attempt to address the possible endogeneity issue present in this relationship. In addition to the conventional and widely exercised methodology, three alternative approaches are considered, and in a Monte Carlo experiment, the performance of four approaches is tested in three different environments. Results of our analysis show that the conventional methodology outperforms only when there is a simple linear type of endogeneity in the model. However, when more complicated types of endogeneity are present, it fails to predict saving rate unbiasedly. In the end, using FAMEX and SHS datasets from Canada, we re-evaluate the question with all different methods. Our empirical analysis suggests that more affluent households do save a larger fraction of their income, and the results are consistent across different years not sensitive to different instruments. Finally, the third chapter looks at the household financial stability from a macroeconomic perspective. Using aggregate data, at the provincial level, on households insolvency rate, we try to point out important aggregate key factors in determining financial instability of households. In a series of panel regression analysis, we explore the effect of aggregate variables such as GPD, unemployment rate, housing prices, interest rate, and household debt level, on the insolvency rate of households. Moreover, in a panel vector autoregressive estimation, we attempt to investigate the interactive effects and consequences of insolvency rate and gross domestic product, while controlling for other related aggregate variables. The key finding is that higher levels of household debt are associated with higher insolvency rate, and insolvency rate has a negative impact on GDP.
Essays in Earnings, Academic Productivity, and School Competition
(University of Waterloo, 2017-08-31) gao, hang
This thesis consists of three self-contained essays evaluating current issues in earnings, academic productivity, and school competition. The first chapter, coauthored with Anindya Sen, looks at returns to post-secondary education and the gender gap in Ontario. We construct a unique individual level panel dataset consisting of earnings of public sector employees of the Government of Ontario, facilitated by the Ontario Salary Disclosure Act which reveals earnings of $100,000 or more. Individual earnings from 2005-2013 were merged with publicly available profiles on www.linkedin.com, which contains details on educational attainment, field of study, job experience, and specific occupation. There are significant field specific differences in returns to post-secondary education. In terms of graduate education, on average, while Ph.D.'s earn a premium relative to undergraduates, there is a modest gender gap in earnings of doctoral degree holders, which is not present among undergraduates. The sample period also experienced significant salary increases for female undergraduates. However, there are significant gender differences in the proportion of individuals who are managers and also in earnings of senior managers belonging to early cohorts. By creating and utilizing a unique panel data from several different sources including the Ontario Ministry of Finance, EconLit, Web of Science, Online CVs, and so forth on all tenured and tenure track professors in 16 Ontario economic departments over 1996 to 2012, the second chapter intends to analyze the pay and position of those professors to see how co-authorship affect an economist's research productivity and how research productivity impacts pay and promotion. The study demonstrates that there is a significant return to co-authored publications relative to solo-authored publications in Ontario universities. The investigation of the relationship between co-authorship and productivity reveals that co-authored publications are associated with higher citation counts. Our research has also demonstrated that higher quality publications have a greater effect on salary, and the likelihood of promotion is positively associated with past performance. The estimates also suggest that some gender differences exist concerning the impact of co-authored publications on the likelihood of promotion. Finally, we find that in Ontario, economists are more likely to co-author with their colleagues,who have the similar ability, experience, and research interest. We found no gender-sorting effect among Ontario economists. In the last chapter, I use a data set obtained from the Ontario Ministry of Education and the Educational Quality and Accountability Office (EQAO) to estimate whether average school performance is affected by competition from other nearby schools. The availability of data on a panel of schools allows me to control for the potentially confounding effects of unobserved school specific attributes. I employ fixed effects, random trend and Instrumental Variables estimation to eliminate the potential simultaneity bias associated with competition between schools. Following Gibbons, Machin and Silva (2008), I use proximity to school board boundaries as an instrumental variable for local school competition. IV estimates suggest a statistically insignificant association between school competition and school performance. Another important finding is that the estimated coefficient is stronger when the sample is restricted to the Toronto District School Board, which may suggest that competition may improve school performance where students are given more freedom to choose their school. This finding may lend support to the current policy which is designed to improve public school performance in Ontario.
Three Essays on the Economics of Innovation as Adaptation to Climate Change
(University of Waterloo, 2017-12-11) Li, Hongxiu
This thesis consists of three chapters on technological innovation as adaptation to climate change. The first chapter adopts a non-cooperative game theory model to investigate the relationship between adaptation technology and the formation of emission-reducing International Environmental Agreements (IEAs) on climate change. The main contribution to the literature consists of considering countries that are heterogeneous with respect to the benefits and costs of both mitigation of emissions and adaptation. While differences in climate vulnerability are a deterrent for cooperation, this chapter shows that increasing the effectiveness of adaptation in highly vulnerable countries can foster an IEA. Both free-riding on climate change mitigation efforts, and free-riding on adaptation technology among members of an IEA can be reduced by the transfer of adaptation technology within the IEA. A numerical example with parameters estimated from climate change data is employed to simulate stable coalitions and demonstrate how the transfer of adaptation technology reduces free-riding on an IEA. The second chapter examines the determinants of adaptive innovation aimed at reducing the impact of natural disasters, which are expected to intensify with climate change. Starting from a conceptual model combining perceived risk theory with innovators' profit motive, this study investigates the salience of innovation induced by natural disasters, using a unique dataset that includes related U.S. patent data, and flood, drought, and earthquake damage data for the years 1977 to 2005. To address the potential endogeneity of disaster damage, the control function approach is employed with instrumental variables constructed from disaster intensity measurements. The results show that impact-reducing innovations at the state level respond to national disaster damages in the U.S. In general, the impact of natural disasters is not localized to a state--that is, disaster damage in a state also stimulates innovations in more-distant states. This is in contrast with comparable existing cross-country evidence. The findings in this paper highlight a policy role for the federal government in more effectively spurring impact-reducing innovations nationwide. With the pressure of economic growth and the impact of climate change, water issues such as water shortage and pollution have substantial impacts on welfare and sustainability. Taking a view of innovation as adaptation to intensified water threats, the third chapter explores the impact of federal and state level regulatory changes with respect to drinking water quality, water pollution and water quantity in the U.S. on the level of relevant technological innovation. Based on a detailed review of relevant legislative acts, a unique dataset covering major amendments and additions to regulated contaminants lists is constructed to capture the changes of water governance in the U.S. in the past 30 years. In addition, technological patents pertaining to water quality and quantity are identified through a comprehensive search process. The empirical results show the impact of water regulations on innovation to be both statistically and economically significant.
The Labour Market Integration of Immigration and Their Role on Innovation
(University of Waterloo, 2017-12-20) 张, 珏
This thesis contains three chapters evaluating the role of labour market skills in determining immigrants' labour market integration and Canada's innovation rate. In Chapter 1, I estimate how the impact of entry economic conditions on immigrants' labour market outcomes varies by the versatility of their skills. Skill versatility is measured using information on the sectoral concentration of native-born workers with a particular education field and level. Entry economic conditions are measured using city-level unemployment rates among native graduates from a similar education field and level. Since immigrants' location choices can be endogenous to geographic local economic conditions, I address the endogeneity of immigrants' location choices by exploiting the historical settlement patterns of immigrants from the same countries of origin. I find that immigrants suffer a 5 to 8 percent decline in their annual earnings when there is a one percentage-point increase in entry unemployment rates. When I incorporate the skill versatility measure in the estimation, the earnings loss is mitigated by 1 to 3 percentage points, if there is a one standard deviation increase in immigrants' skill versatility level. This effect is less evident for highly educated immigrants and it may be due to their being more likely to have pre-arranged employment before landing. I also find that city-level onward migration is more likely for immigrants who face unfavourable labour market conditions at entry, and movers do fare better than stayers conditional on initial setbacks. Meanwhile, immigrants' geographical mobility is found to be strengthened to some extent by their skill versatility. Chapter 2 examines the effect of changes in skilled-immigrant population shares in 98 Canadian cities between 1981 and 2006 on per capita patents. The Canadian case is of interest because its `points system' for selecting immigrants is viewed as a model of skilled immigration policy. Our estimates suggest unambiguously smaller beneficial impacts of increasing the university-educated immigrant population share than comparable U.S. estimates, whereas our estimates of the contribution of Canadian-born university graduates are virtually identical in magnitude to the U.S. estimates. The modest contribution of Canadian immigrants to innovation is, in large part, explained by the low employment rates of Canadian STEM-educated immigrants in STEM jobs. Our results point to the value of providing employers with a role in the immigrant screening process. Lastly, in Chapter 3, using inventors' names to identify their ethnicity and Canadian Census and NHS data to estimate ethnic populations, we estimate patenting rates for Canada's ethnic populations between 1986 and 2011. The results reveal higher patenting rates for Canada's ethnic minorities, particularly for Canadians with Korean, Japanese, and Chinese ancestry, and suggest that immigrants accounted for one-third of Canadian patents in recent years, despite comprising less than one-quarter of the adult population. Human capital characteristics, in particular the share with a PhD and the shares educated and employed in STEM fields, account for most of the ethnic-minority advantage in patenting. Our results also point to larger patenting contributions by foreign-educated compared to Canadian-educated immigrants, which runs counter to current immigrant selection policies favouring international students.
Empirical Essays in Water and Electricity Use
(University of Waterloo, 2018-04-30) memartoluie, ghazal
This thesis consists of three self-contained essays evaluating the impacts of educational attainment and average income at the community level on water consumption, the effects of different sources of energy on wholesale electricity rates and the effects of eliminating coal-fired electricity generation on air quality. The first chapter looks at the impacts of educational attainment and average income at the community level on water consumption. The focus of this paper is on the three cities of Cambridge, Kitchener and Waterloo. In this chapter, we construct a unique household-level panel dataset that has monthly water consumption data of 22,000 households from 2012-2014. Our study shows that water consumption decreases as income at the Dissemination Area (DA) level increases. Our findings also show that educational attainment affects water use in a different way at different education levels in the following sense: increasing educational attainment at lower levels of education (from no certificate to high school certificate) increases water consumption, but the effect reverses when people receive post-secondary education. In addition, our study suggests that although education at different geographical levels affects household water consumption in different ways, there is a turning point where the explained relationship changes direction. By creating and utilizing a unique panel data from the Independent Electricity System Operator (IESO) and Statistics Canada, over 2009 to 2014, the second chapter intends to analyze the effects of different sources of energy on wholesale electricity rates to see how the considerable shifts in electricity fuel mix since $2009$ have impacted the Hourly Ontario Energy Price (HOEP) and Global Adjustment (GA). The study demonstrates that while less reliance on coal has resulted in an upward pressure on the HOEP, the increase in other sources of energy such as nuclear, hydro and wind power generations outweighed the effects of eliminating coal, which explains why the average HOEP fell from 26.4 $\$/MWh$ in 2012 to $23$ $\$/MWh$ in 2014. On the other hand, the GA in terms of $\$/MWh$, rose by almost $50\%$. Although less coal is significantly associated with higher GA payments, we do not find that more wind and nuclear power generation have resulted in higher GA payments. In addition, our results show that more gas power is correlated with a reduction in GA. Lastly, the third chapter uses the hourly air pollutant data associated with four cities of Toronto, Hamilton, Ottawa and Sarnia in addition to the data on hourly electricity generation from coal, gas, hydro, nuclear, wind and other (solar and biofuel) type of power plants for the period of $2009$ to $2016$. The pollution data are obtained from the Ontario Ministry of the Environment and Climate Change and the data on fuel mix are obtained from the Independent Electricity System Operator (IESO). We estimate the effects of hourly changes in fuel mix on Ozone ($O_{3}$), Nitrogen Oxide ($NO_{x}$), and Particulate Matter ($PM_{2.5}$) over a period in which coal-fired electricity generation was gradually eliminated from the electricity market. The paper also estimates the impacts of fuel mix on the probability of smog days. The results suggest that relative to coal, more nuclear and wind energy is correlated with decreased levels of $NO_{x}$ and $PM_{2.5}$. In addition, an increase in nuclear powered generation is associated with reduced $O_{3}$ levels. On the other hand, the results suggest that in general, the correlation between different types of fuel mix and the elimination of smog days are not statistically significant.
Commodity Prices, Stock Prices and Economic Activity in a Small Open Economy
(University of Waterloo, 2018-05-10) McLeod, Shernette
This thesis is comprised of three papers which jointly examine the role of commodity prices as well as other asset prices in influencing the evolution of economic activity in a small-open economy (SOE). Using Canada as the quintessential small-open economy, each chapter adopts a particular approach to investigating this dynamic relationship. It is hoped that the contribution made in this thesis to understanding the relationship will aid policy-makers as they attempt to address the associated policy questions which are often fraught with difficulties and uncertainty. In chapter 1 the use of a recursively identified Vector Auto-Regression (VAR) is employed to study the impact of commodity price shocks on Canada's macro-economy. While similar analysis has been carried out before, this has tended to focus solely on the impact of oil prices. Additionally, the analysis has tended to focus on aggregate output, while neglecting the specific sectoral impact. Given that each sectors' exposure to commodity price movements will be different, one would also expect varying sectoral responses to these shocks. Chapter 1 attempts to focus on this and thus offers a level of insight into the operation of the Canadian macro-economy which has not been extensively addressed in the literature. The results suggest that indeed there is divergent sectoral responses to commodity price shocks, using a broad measure of commodity prices. The commodity producing sectors of the economy respond favourably to an unexpected rise in commodity prices, whilst the manufacturing sector is negatively impacted by such movements. We also found evidence that policy-makers may attempt to contain any inflationary pressures emanating from rising commodity prices by raising interest rates. Chapter 2 delves even further into the dynamics of this relationship by employing a Dynamic Stochastic General Equilibrium (DSGE) model. In this chapter we extend the analysis undertaken in chapter 1, where we are again attempting to ascertain the sectoral responses to a commodity price shock. The use of this modelling framework however allows us to analyse that relationship in a manner which is internally consistent and also in-line with our beliefs about the behaviour of economic agents. Additionally, the DSGE model allows us to conduct counter-factual policy experiments which were not possible using the VAR framework. The results of the model are generally in-line with those found in chapter 1, as the commodity price shock has differing impacts on the various sectors of the economy. The results suggest that just examining the aggregate effects of commodity price shocks could overshadow important sectoral differences which are subsumed in these aggregate figures. Additionally, the counter factual policy exercises indicate that actions taken by the Central Bank during the Global Financial Crisis positively impacted Canada's economic performance during the crisis and the period immediately after. In the final chapter, co-authored with Jean-Paul Lam, we seek to quantify the interdependence between stock prices and monetary policy using an underidentified Structural VAR (SVAR) for Canada and the United States. We find that employing a recursive identification leads to counterfactual responses for the stock market following a monetary policy shock. In the underidentified VAR, the stock market and monetary policy are allowed to simultaneously react to each other's shock through a combination of short-run, long-run and sign restrictions. Unlike many studies in this literature, we impose a minimal number of restrictions on the short-run and long-run matrix, allowing the data to uncover the relationship between the variables in the SVAR. We find that an increase of 25 basis points (b.p.) in the policy rate of the central bank leads to a fall of about 1.75% in stock prices in Canada and to a fall of about 1.25% in stock prices in the U.S. This effect of monetary policy on stock prices is larger in Canada compared to the U.S. mainly because sectors that are interest rate sensitive, such as financials and energy account for a much larger share of the stock index in Canada compared to the U.S. Following a stock market shock, the short-term interest, industrial production, inflation and commodity prices rise both in Canada and in the U.S. A 1% increase in the stock market leads to an increase of about 27 b.p. in the overnight rate in Canada while it leads to an increase of about 10 b.p. in the Federal funds rate.

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