Three Essays on Macroeconomic Policy in Emerging Market and Developing Economies

Nickson Japon Cabote

This dissertation consists of three essays on macroeconomic and fiscal policy in an emerging-market setting. It emphasizes how information constraints, limited commitment, and enforcement capacity shape both the measurement of policy actions and the design of policy rules. The first essay measures the real-time forecasting value of central-bank communications in a data-constrained setting. Using the Bangko Sentral ng Pilipinas, I build pseudo real-time inflation and output forecasts from a macro panel and test whether Monetary Board meeting highlights add predictive power under strict release- and publication-lag timing. Communication features improve inflation forecasts more than output forecasts, consistent with the inflation-focused nature of BSP communications. I then use the resulting public-information forecasts and lagged text measures in a policy reaction function to study policy-rate innovations and their macro implications. The second essay studies optimal fiscal policy in a small open-economy DSGE model with an endogenous fiscal authority that chooses government spending under borrowing constraints and convex adjustment costs. I solve the model globally and characterize the Markov-perfect equilibrium under perfect capital mobility and news about fundamentals. Fiscal policy is procyclical: spending tracks the macro state because households anticipate persistent fiscal pressure and reduce saving. The main mechanism operates through state-contingent level shifts in the spending rule rather than changes in its wealth-slope response. The third essay quantifies how low-salience policy drift and episodic reforms reshape the personal income tax when enforcement expansion is costly. Focusing on the Philippines from 2006 to 2018, I use nationally representative household survey data to construct a transparent filing proxy, simulate statutory liabilities, and recover year-specific effective tax schedules. I decompose changes into drift from nominal non-indexation and reset from the 2018 TRAIN reform. Statutory simulations imply that the zero-liability share rises from 54% in 2012 to 72% in 2018. At fixed 2012 incomes, TRAIN lowers the mean statutory effective tax rate by about 5.5 percentage points, while non-indexation raises the 2012 mean by about 1.3 percentage points. Overall, the essays highlight a central tradeoff for emerging-market policy: institutions can alter measured progressivity and stabilization properties, but constraints on information, commitment, and enforcement fundamentally shape feasible policy design.

Three Essays on Macroeconomic Policy in Emerging Market and Developing Economies

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