Browsing by Subject "Great recession"

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    Essays in public Economics
    (2013-07) Pouokam, Nathalie Cabrele
    This dissertation consists of two essays of public economics. In the first essay, I build a new and rich quantitative model of unsecured and secured debt to study the impact of the 2005 bankruptcy reform law on the foreclosure crisis during the great recession. I find that the bankruptcy reform did not significantly affect the foreclosure rate, but it moderately lowered the foreclosure rate by raising the opportunity cost of a bad credit record, thereby making households less likely to default simultaneously on mortgage contracts and on unsecured credit contracts. In the second essay, I use a game theoretical model to show how political institutions shape prospects of economic growth. The study predicts that everything else equal, economies that are the most likely to grow are those with the strongest political institutions: the lowest probabilities of occurrence of a coup d'etat and the lowest probabilities of falling in an absorbing state of dictatorship. Consistently with empirical facts on growth, the relationship predicted between dictatorship and economic growth by the model is a non-linear one: given a probability of falling in the state of dictatorship, the occurrence of growth depends on the discount factor of citizens. The essay also shows that even when the economy is already growing as a dictatorship, a one-shot transition to democracy is still desirable to citizens as it reduces the payoffs that are necessary to provide dynamic incentives to politicians in power.
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    Essays on financial frictions and macroeconomics.
    (2012-07) Hur, Sewon
    This dissertation consists of three essays. The first essay analyzes the effects of the Great Recession on different generations. While older generations have suffered the largest decline in wealth due to the collapse in asset prices, younger generations have suffered the largest decline in labor income. Potentially, the young may benefit from the purchase of cheaper assets, especially if they have access to credit. To analyze the impact of these channels, I construct an overlapping generations model with borrowing constraints in which households choose a portfolio over housing as well as risk-free and risky financial assets. Shocks to labor efficiency and uncertainty regarding the return on risky assets generate a recession with a drop in asset prices and cross-sectional changes in consumption, investment, and wealth that are consistent with the recent recession. In particular, younger generations experience large declines in nondurable consumption and housing investment, a fact that is supported by the data. Overall, the young suffer the largest welfare losses, equivalent to a 5 percent reduction in lifetime consumption. In the second essay, Illenin Kondo and I study the foreign reserves accumulation of emerging economies. Emerging economies, unlike advanced economies, have accumulated large foreign reserve holdings. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a crucial role in reducing debt rollover crises ("sudden stops"), akin to the role of bank reserves in preventing bank runs. An unexpected increase in rollover risk leads to a global rise in sudden stops, prompting emerging economies to update their priors about the risk they face. We show that a global increase in the rollover risk faced by emerging economies explains the outburst of sudden stops in the late 1990s, the subsequent increase in foreign reserves holdings, and the salient resilience of these countries to sudden stops ever since. In the third essay, Jose Asturias and I examine the role of entry barriers on firm entry and exit, aggregate productivity and output. Using cross-country data, we document that gross domestic product (GDP) per capita is positively correlated with firm entry rates, and that firm entry rates are positively correlated with barriers to firm entry. We develop a model, based on Asturias, Hur, Kehoe, and Ruhl (2012) where aggregate productivity growth is driven by the endogenous entry of productive firms and the endogenous exit of unproductive firms. Differences in entry policy lead to different levels of entry and output, while all economies grow at a balanced growth path with identical growth rates. In the quantitative extension, we show that reforms to entry costs can generate transition paths that resemble that of high-growth emerging economies.