Semester

Spring

Date of Graduation

2025

Document Type

Dissertation

Degree Type

PhD

College

College of Business and Economics

Department

Economics

Committee Chair

Scott Schuh

Committee Co-Chair

Arabinda Basistha

Committee Member

Arabinda Basistha

Committee Member

Feng Yao

Committee Member

Bruno Sultanum

Abstract

This dissertation, ''Essays on the Interaction between Macroeconomics, Money, and Government Bonds,” has three chapters that study how macroeconomics (e.g., inflation), government bonds, and money interact with each other. It provides insights into how households make optimal maturity choices in government bonds, how households own different types of government bond assets, and how money growth can help understand the cross-country inflation after COVID-19.

The first chapter develops an intertemporal portfolio choice model to investigate the optimal household portfolio choice for government bonds across maturities. The U.S. Treasury data displays a higher holding share of long-term government bonds. Adding uncertain labor income, analytical solutions decompose the optimal choice for long-term government bonds into two components: return demand for the expected excess return on long-term over short-term government bonds and hedging demand to hedge uncertainty in future labor income. An affine term structure model identifies inflation as a main factor and explains the sign of hedging demand. Lastly, this article briefly shows how bond allocation can benefit broader macroeconomic issues, such as money demand.

Household ownership of government bond assets has not received sufficient attention. Differentiating between government bond mutual funds, government bonds, and savings bonds, the second chapter investigates household decisions on these low-risk assets. The descriptive analysis shows a decreasing ownership of government bond assets, particularly direct holdings of government and savings bonds, while indirect holdings through mutual funds or ETFs have risen slightly. The empirical analysis emphasizes the heterogeneity and complexity in household finance decisions. Factors that determine ownership decisions on risky assets may not affect these three riskless assets. In addition, some determinants exhibit different, even opposite, effects across asset types.

The third chapter is a joint work with Dr. Scott Schuh. The third chapter extends Teles et al. [2016] by estimating the Quantity Theory of Money (QTM) with data for 71 countries from 2001-2019 and using it to simulate inflation out of sample (2020-2022), a period of heterogeneous inflation experiences after COVID-19. Model estimates show the QTM continued to fit international data well, even for inflation-targeting (IT) countries. Model simulations explain most of the post-COVID increase in inflation that primarily occurred in countries with relatively high growth of broad monetary aggregates.

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