Communications Project

Document Type:Dissertation
Name:Ajay Tandon
Title:Essays on Development Economics: Issues in Macroeconomics and Population
Degree:Doctor of Philosophy
Committee Chair: Djavad Salehi-Isfahani
Committee Members:Stuart Rosenthal
Richard Ashley
Russell Murphy
Gautam Hazarika
Keywords:currency substitution, endogenous beliefs, fertility
Date of defense:July 13, 1998
Availability:Release the entire work for Virginia Tech access only.
After one year release worldwide only with written permission of the student and the advisory committee chair.


This dissertation consists of three chapters on development economics. The first two chapters are in the area of international macroeconomics. The third chapter is in an area that is the intersection of macroeconomics and population economics.

The first chapter studies currency substitution in an environment where agents' inflation tax evasive demand for foreign money is balanced by the concern for the possibility that the government may impose economy-wide capital controls under which foreign currency transactions are costly. We contrast implications of constant beliefs regarding capital controls with those obtained under endogenous beliefs. With endogenous beliefs, agents expect a greater likelihood of capital controls as economy-wide currency substitution rises. Our results show a persistent demand for foreign money under endogenous beliefs despite efforts by the government to reduce inflation.

The second chapter is a theoretical study of currency substitution in an overlapping-generations economy. We focus on the role of beliefs in determining the relative demands for domestic and foreign money. Domestic money suffers from a lack of confidence leading agents to demand foreign money as an alternate store-of-value. We study equilibria in which the level of confidence in domestic money evolves as a function of expected future aggregate domestic money demand: agents increase their demand for domestic money only if aggregate economy-wide real domestic money demand is expected to rise.

The third chapter is a study of intertemporal substitution and fertility dynamics. The demographic experience of Iran after the revolution poses an interesting puzzle. A brief increase in period fertility after the 1979 revolution interrupted a trend of decline that had started in the 1950s. The rise in fertility, however, appears to have lasted only a few years: in the late 1980s fertility decline resumed its course at an even faster pace. We present evidence that suggests that the changes in Iranian fertility since the revolution were in part a birth timing phenomenon. The revolution may well have been a transient economic shock which temporarily depressed the relative "price" of children and caused adjustment in fertility patterns which, at least in an ex post sense, is suggestive of intertemporal substitution.

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