Browsing by Subject "Business cycles"

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    Essays in Macroeconomics
    (2015-06) Huo, Zhen
    This dissertation includes three chapters. The first two chapters are co-authored with Naoki Takayama. The first chapter presents a model of business cycles driven by shocks to agents' beliefs about economic fundamentals. Agents are hit both by common and idiosyncratic shocks. Common shocks act as confidence shocks, which cause economy-wide optimism or pessimism and consequently, aggregate fluctuations in real variables. Idiosyncratic shocks generate dispersed information, which prevents agents from perfectly inferring the state of the economy. Crucially, asymmetric information induces the infinite regress problem, that is, agents need to forecast the forecasts of others. We develop a method that can solve the infinite regress problem without approximation. Even though agents face a complicated learning problem, the equilibrium policy can be represented by a small number of state variables. Theoretically, we prove that the persistence of aggregate output is increasing in the degree of information frictions and strategic complementarity, and there is a hump-shaped relationship between the variance of output and the variance of the confidence shock. Quantitatively, our model with confidence shocks can match a number of the key business cycle moments. The second chapter develops a general method of solving rational expectations models with higher order beliefs. Higher order beliefs are crucial in an environment with dispersed information and strategic complementarity, and the equilibrium policy depends on infinite higher order beliefs. It is generally believed that solving this type of equilibrium policy requires an infinite number of state variables (Townsend, 1983). This paper proves that the equilibrium policy rule can always be represented by a finite number of state variables if the signals observed by agents follow an ARMA process, in which case we obtain a general solution formula. We also prove that when the signals contain endogenous variables, a finite-state-variable representation of the equilibrium may not exist. For this case, we develop a tractable algorithm that can approximate the solution arbitrarily well. The key innovation in our method is to use the factorization identity and Wiener filter to solve signal extraction problems conditional on infinite observables. This method can be used in a wide range of applications. We demonstrate its strong practicability by solving several classical models featuring higher order beliefs. The third chapter is co-authored with Jose-Victor Rios-Rull. We build a variation of the neoclassical growth model in which both wealth shocks (in the sense of wealth destruction) and financial shocks to households generate recessions. The model features three mild departures from the standard model: (1) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (2) there is a mild form of labor market frictions (Nash bargaining wage setting with Mortensen-Pissarides labor markets); (3) goods markets for nontradables require active search from households wherein increases in consumption expenditures increase measured productivity. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks.
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    Essays in macroeconomics and taxation.
    (2011-07) Solis-Garcia, Mario Alberto
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    A firm foundation: essays on firm choice
    (2014-12) Hill, Enoch Stanley
    This dissertation consists of three essays.In the first essay, Kai Ding and I develop a dynamic general equilibrium model in which a change in the importance of firm specific human capital can explain the new pattern in labor productivity as well as partially account for the decrease in the rate of employment recovery (jobless recoveries) observed in the most recent three recessions. Additionally, we present empirical support that the importance of firm specific human capital has in fact increased for recent recessions.In the second essay, David Perez-Reyna and I incorporate theft in a macroeconomic setting with the goal of understanding the effects of public law enforcement (PLE) on the incarceration rate, aggregate output and average welfare. Our primary finding is that there exists a non-monotonic relation between the level of PLE and all three of these aggregate variables. In particular, for countries with relatively small amounts of PLE, there is an inverse relationship between PLE and both aggregate production and welfare primarily due to an increase in the incarceration rate. However, for countries with higher levels of PLE, the level is positively related to production and welfare and inversely related with the incarceration rate. When applied to a dynamic model, our mechanism can explain why we observe such a large difference in the level of PLE across countries.In the third essay, David Perez-Reyna and I present a general equilibrium model where heterogeneous consumers endogenously choose whether to become workers, consumers or entrepreneurs in order to analyze how limits on the leverage of banks affect real output. In our model tighter limits on the leverage of banks cause an increase in the spread between the interest rate that banks charge for loans and the interest rate that banks pay for deposits. A higher spread results in two types of distortions: First, firms with the same productivity will have different size. Second, productive firms will cease to exist, while nonproductive ones will enter. These distortions result in lower production.