Browsing by Subject "Macroeconomics"

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Essays in Heterogeneous Agent Macroeconomics
(2018-06) Mrkonich, Robert
This dissertation consists of three chapters. The first chapter surveys the literature on the solving of heterogeneous agents models. From the Bewley/Huggett/Aiyagari models of the 1990s that focus on idiosyncratic risk to the addition of aggregate risk in models based on Krusell-Smith’s heterogeneous agent model have become standard workhorses of macroeconomics. This is unlikely to change as the increased availability of household level data and improvements in computational speed have made previously infeasible models not only solvable but also able to be disciplined. The second chapter presents a model of international transmission of financial shocks where the country of origin is fundamental to the transmission of the shock. Highly developed countries tend to accumulate larger positions in riskier, but more productive, capital flows, as seen in the data. When a financial shock occurs, the ability to insure is impaired, which lessens demand for risky foreign capital, which lowers production abroad. We interpret the Financial Crisis of 2008 as a change in the ability of financial market quality and calibrate the model to match the change in capital flows. Importantly, the calibrated model matches not only changes in capital flows, but also relative movements in interest rates as well as changes in debt flows. The third chapter examines the concern about the observed decline in entrepreneurship over the past 30 years. This chapter argues the decline reflects a change in the timing of entrepreneurship decisions because of increased educational attainment and its associated cost. A greater number of older workers and fewer young people are choosing to become entrepreneurs. I find that trends in education costs, the skill premium, and the compression of morbidity quantitatively explain the change in the age composition of entrepreneurs. In a series of sensitivity analyses, I establish that, to successfully match the observed rates, it is important to take into account each of these trends. An additional implication of the model is that efficiency increases sharply with a better educated workforce indicating that decreased entrepreneurship might not be as troubling a trend as previously thought.
Essays in International Economics
(2014-07) Uy, Timothy
This dissertation consists of three essays. The first essay analyzes the effects of fixed costs in generating country pairs that do not trade or do foreign direct investment, and how incorporating such country pairs changes the welfare gains one computes from policy reform. Despite the enormous growth over the past several decades in global trade and investment, most countries still do not trade or invest with one other. Using a recently commissioned dataset, I document that 80% of bilateral trade and FDI relationships are zeros. I construct a model that rationalizes these zeros and allows bilateral relationships to form (aggregate zero-to-one transitions) following policy reform. Exact equilibria do not generically exist in the resulting multidimensional discrete-choice fixed point problem. I develop an algorithm that computes an approximate equilibrium where (1) countries engage in more than 99% of all profitable bilateral relationships available to them, and (2) where 99% of the bilateral relationships they engage in yield positive profits. Relative to models with no aggregate entry or exit, the gains from openness in the model where zeros matter are higher by 30% on average, with the discrepancy larger for countries in the developing world.In the second essay, I study the impact of international trade on the rise of the service economy. Services now constitute the majority of both value added and labor in the developed world, and its share is rising still. Trade in services, however, comes nowhere near that level as a fraction of aggregate trade, with few service providers exporting to foreign destinations. Moreover, while productivity growth in services as a whole has lagged behind the rest of the economy, service exporters are more productive, sell more, and hire more workers than their domestic counterparts. I construct a Heckscher-Ohlin model where firms have heterogeneous productivity levels and show that the asymmetric lowering of trade barriers across sectors can qualitatively account for all these facts. The model predicts that labor in skill-abundant countries should move into services. It also features endogenous selection into export markets, with exporters being more productive, selling more, and making more profits than domestic producers. Furthermore, as barriers to service trade remain high relative to non-services, the positive effect that foreign competition in the model has on sector-level average productivity is weaker, generating slower growth in service productivity. These results are shown to be robust to the introduction of intermediates and capital.In the third essay, I examine the role of debt auctions on quantitative models of sovereign default. Government bonds with default risk are often sold by auction, whether competitive or discriminatory. In standard models of sovereign default, the pricing protocol stipulates the existence of perfectly informed risk-neutral foreign creditors with flat demand curves that price bonds uniformly so they break even in expected value. In contrast, this paper follows the auction literature in assuming that creditors face downward sloping demand curves and uncertainty over the stop-out price at which bonds are sold. The interaction of this auction component with default risk has a significant impact on both the level of government borrowing and probability of default. Further, the auction mechanism matters: if bonds are sold using a competitive auction, it is optimal for lenders to bid their true valuation; in contrast, agents have an incentive to understate their valuation under a discriminatory auction protocol. Understanding the tradeoffs inherent in the choice between competitive and discriminatory bond auctions in the presence of default are particularly pertinent for countries that have historically been vulnerable to sovereign debt crises.
Essays in International Economics and Macroeconomics
(2017-08) Ayres Queiroz da Silva, Joao Luiz
The three chapters of this dissertation investigate major puzzles in international economics and macroeconomics. Chapter 1 proposes a new measure of knowledge production within corporations and analyzes how the production and flow of knowledge within multinational cor- porations can account for the cross-country correlation in corporate sector GDP fluctuations. Chapter 2 studies how fluctuations in the price of primary commodities can account for fluctua- tions in bilateral real exchange rates between the United States and United Kingdom, Germany, and Japan. Finally, Chapter 3 studies the role of firm entry in accounting for the slow recovery in employment following the World Economic Crisis in 2008–2009.
Essays in international trade.
(2012-07) Brooks, Wyatt James
This thesis is divided into three separate chapters. The first chapter, joint work with Alessandro Dovis, analyzes the effect of financial frictions on the gains from undergoing trade reform. Financial frictions may limit the ability of exporting firms to expand, or keep new firms from becoming exporters in response to a trade liberalization. The way that financial frictions are modeled crucially determines whether or not this happens. Empirical evidence from a trade liberalization shows that capital flows to new exporters efficiently in response to the liberalization, even though those firms are still financially constrained. This suggests that financial market inefficiency is not a barrier to realizing gains from international trade. The second chapter, joint with Pau Pujolas, examines contemporary and historical international trade data, and establishes new patterns of trade between countries of differing income levels. Existing trade models cannot simultaneously rationalize high intra-industry trade between countries of similar income levels, and low intra-industry trade between countries of different income levels. A model of non-homothetic preferences is consistent with these facts, and implies higher gains from trade than standard models. The third chapter considers the problem of a government that wants to use immigration policy as a source of fiscal revenue. Governments can allow highly productive immigrants to enter and then tax them to finance spending on their native population. Optimal policy is considered in the context of a fixed native population and pool of potential immigrants. Optimal immigration policy follows a cutoff rule in the productivity of the entering immigrant. When agents are privately informed about their own productivity, immigrants are taxed at a higher rate than natives and the effect on the native population of increased fiscal transfers may be very large.
Essays in macroeconomic labor markets.
(2012-08) Michaud, Amanda Marie
In this thesis I study labor market dynamics in a macroeconomic context. The first chapter infers a theory of employment using the differences in wage and employment outcomes of job changers. This theory is used to understand differences in levels of unemployment and predict the effect of policy prohibiting employment discrimination against the unemployed. The second chapter examines the evolution of employment volatility relative to output in the US over the past half century. I find the increase is driven by certain demographic subgroups that can be thought of as highly skilled. I use this variation to see if a theory of increased skill transferability can account for the overall macro increase in relative employment volatility. The final chapter, joint with Jacek Rothert, proposes a link between government housing policy and savings in China. We construct a model of learning by doing in exports and find that optimal government policy restricting residential construction raises employment and output in the tradeable sector. This produces both a current account surplus and can be rationalized as benevolent because of the growth externality in learning by doing.
Essays in Macroeconomics
(2014-07) Takayama, Naoki
This thesis is composed of three separate essays. In the first essay of this thesis, I study the underlying mechanism behind the decision on living arrangements and household formation. The decisions to leave home and to marry are critical decisions that are at the foundation of family formation with tradeoffs between the benefits from parental altruism and the advantages of marriage. This research uses large-scale micro data on Japan to study both issues jointly. This paper proposes three possible drivers in the mechanism: (1) the strong economy of scale in Japan generated by high living cost, (2) the weak bargaining position of women on the living arrangements when they marry, and (3) the gender wage gap and the career interruption cost for women. The results suggest that high living cost discourage people to marry and live without parents and the bargaining structure encourage them to stay single and live with their own parents. The wage structure seems to have relatively weaker effects. In addition, the estimates on the preference suggest that individuals dislike living with parents-in-law and desire to leave parents' home, while marrying potential spouse is preferable. In the second essay of this thesis, Satoshi Tanaka and I study the implication of the child support enforcement (CSE) policy. The child support enforcement policies, aimed at protecting out-of-wedlock children from financial disadvantages, brought unexpected changes in individuals' marriage and fertility behaviors during the 1980s and the 1990s. Our estimates from state-year panel data show that in states with strict CSE there has been a significant decrease in non-marital births and a significant increase in marital births. Taking into account all these changes, what are the effects of CSE on children's welfare? To answer this question, we build a heterogeneous-agent model that features endogenous marriage and child-investment decisions. Exploiting the state-level variation in enforcement, we estimate it using the National Vital Statistics Report data. We find that men's increased willingness to marry is the driving force behind the shift from non-marital births to marital births. As evidence for the mechanism, we show that the number of marriages has risen in the states with strict CSE during the same period, consistent with the model's implication. Our model predicts that a large increase in child investment comes through a secondary effect of CSE: the shift from non-marital births to marital births increases child investment through its income effect. In the last essay of this thesis, Bernabe Lopez-Martin and I study the long-run consequences of recessions for young individuals and the impact of government taxation. Recessions generate large increases in youth unemployment rates and young unemployed workers suffer significant losses in terms of the expected present discounted value of their labor earnings. We build a life cycle model with on-the-job human capital accumulation and aggregate and idiosyncratic productivity shocks (extended to consider ex-ante heterogeneous workers). The unemployment rate for young workers is higher and we find an important quantitative impact of the tax-wedge (consistent with cross-country empirical estimates): in countries where the tax-wedge is higher, unemployment rates are amplified, particularly for young workers. We compute the long-term earnings losses of individuals that lose their job in different states of the economy and find that losses are bigger: (1) in worse aggregate states of the economy, (2) for younger individuals, (3) in economies with a higher tax wedge, (4) for ex-ante lower ability individuals.
Essays in Macroeconomics
(2017-06) Ding, Kai
This dissertation consists of two essays. In the first essay, Enoch Hill and I develop a dynamic general equilibrium model in which an increase in the importance of firm-specific human capital is able to account for two key changes in business cycle patterns in the U.S. since mid-1980s: jobless recoveries and the reversal in the cyclicality of labor productivity. Additionally, we present empirical support that the importance of firm-specific human capital has indeed increased in importance for recent recessions. In the second essay, Zhifeng Cai and I develop a macroeconomic model of financial frictions in order to account for the investment and cash holding behavior of self-financing corporations during the Great Recession. Unlike standard models of financial frictions which impose collateral or borrowing constraints on firms, the financial frictions in our model work through the liquidity channel. In our model, corporate investment is subject to liquidity shocks. Bank credit line and liquid assets are substitutes for financing liquidity shocks. In our model, a tightening of the bank credit line forces firms to hold more liquid assets, increasing the effective cost of capital expenditure hence reducing corporate investment.
Essays in Macroeconomics
(2024-05) Perez Perez, Luis
Over the course of the past five decades, several puzzling macroeconomic trends have caught the eye of economists and policymakers alike. The rise of market power, the decline of the labor share, and the decline of productivity growth are simply some prominent examples. Given their importance, much has been written and discussed about these topics, yet little is still known about their underlying causes. In addition to these phenomena, in recent years economists have turned their attention to the Covid-19 pandemic, grappling with understanding its economic ramifications and with formulating optimal policy interventions. My doctoral dissertation, titled "Essays in Macroeconomics," consists of four distinct yet interconnected chapters. These chapters delve into the topics outlined above, with Economic Growth and Public Finance serving as unifying themes. The first two chapters fall within the scope of Economic Growth, while the last two center on Public Finance. Methodologically, each chapter combines economic theory with empirical or quantitative analysis, if not both, to shed light on important macroeconomic questions.
Essays in macroeconomics and financial markets.
(2012-08) Zetlin-Jones, Ariel
In this dissertation, we study the interaction of financial markets and the macroeconomy. In Chapter 1, we examine the quantitative importance of financial market shocks in accounting for business cycle fluctuations. We emphasize the role financial markets play in reallocating funds from cash-rich, low productivity firms to cash-poor, high productivity firms. Using evidence on financial flows at the firm level, we find that for publicly traded firms (in Compustat), almost all investment is financed internally. However, using an alternative data source (Amadeus), we find that most investment by privately held firms is financed through borrowing. Motivated by these observations, we build a quantitative model featuring publicly and privately held firms that face collateral constraints and idiosyncratic risk over productivity as well as non-financial linkages. In our calibrated model, we find that a shock to the collateral constraints which generates a one standard deviation decline in the debt-to-asset ratio leads to a 0.5% decline in aggregate output on impact, roughly comparable to the effect of a one standard deviation shock to aggregate productivity in a standard real business cycle model. In this sense, we find that disturbances in financial markets are a promising source of business cycle fluctuations when non-financial linkages across firms are sufficiently strong. In Chapter 2, we analyze the causes of financial crises and policies designed to mitigate their effects. we provide new evidence that the capital structure of financial institutions is significantly more illiquid than that of non-financial businesses. We develop a theory in which such differences in capital structure arise from the differences in information lenders have about the assets of financial and non-financial businesses. We use the theory to show that the illiquid capital structure used by financial institutions leads such institutions to be inherently fragile and that government interventions during a crisis, such as bailouts, are not desirable. In Chapter 3, we study policies intended to remedy collapses in secondary loan markets. Loan originators often securitize some loans in secondary loan markets and hold on to others. New issuances in such secondary markets collapse abruptly on occasion, typically when collateral values used to secure the underlying loans fall and these collapses are viewed by policymakers as inefficient. We develop a dynamic adverse selection model in which small reductions in collateral values can generate abrupt inefficient collapses in new issuances in the secondary loan market by affecting reputational incentives. We find that a variety of policies intended to remedy market inefficiencies do not help resolve the adverse selection problem.
Essays in Macroeconomics and Labor Economics
(2024-05) Pedtke, Joseph
This dissertation studies topics at the intersection of macroeconomics and labor economics, focusing on three areas: (1) inequality and intergenerational mobility, (2) macroeconomic crises and labor markets, and (3) employment effects of expansions of public healthcare. In Chapter I, I evaluate driving forces of trends in inequality and intergenerational mobility in the United States. Parents devote considerable resources towards their children's development, making trade-offs between time and education investments and working, consumption, and leisure. In recent decades, families in the United States experienced rising rates of single parenthood, increasing education prices, and changes to taxes and transfers, which altered available resources and trade-offs to investments across families. This chapter explores the implications of these trends for inequality and intergenerational mobility. After documenting changes in family resources and parental investments over time, I develop a dynastic model of human capital investment to quantify the contributions of these trends to increases in inequality and intergenerational persistence. I find that single parenthood is a major contributor through two channels: (1) less available time for single parents limits work hours, family income, and investments for their children’s human capital development and (2) the resulting lower human capital comes with a greater probability of becoming a single parent as an adult, as single parents tend to have less education and lower wages. Education prices, on the other hand, had only minimal effects as families reduce investments at similar rates in response to price increases. Moreover, changes to taxes and transfers had heterogeneous impacts on parental investments by producing differing income and substitution effects depending on family characteristics. The results highlight the importance of considering parental investments when designing assistance programs. In Chapter II, in joint work with Kevin Donovan, Will Jianyu Lu, and Todd Schoellman, we characterize how labor markets transmit aggregate shocks to idiosyncratic earnings risk experienced by households. This chapter uses both aggregate and micro data from quarterly labor force surveys to document four new findings about how they do so. First, the distribution of unemployment responses to recessions includes a long tail. In the most severe decile of recessions, unemployment rates rise by 5--20 percentage points and take 16--33 quarters to begin to recover. Second, there is a close relationship between these severe crises and a small set of shocks, including financial crises, house price busts, and sudden stops. Third, manufacturing and construction play a key role in all recessions, including crises, accounting for more than half of employment losses. Fourth, crises fall most on young and less-educated workers, who are likely to have low income and wealth and hence be less able to self-insure against idiosyncratic earnings risk. Taking into account both the large aggregate shocks and their incidence, the welfare costs of business cycles are likely to be larger than standard calculations imply. In Chapter III, in joint work with Sean Bassler, we measure the effect of Medicaid Expansion on the work arrangements of low-income adults. Before the expansion, many of these individuals only had access to subsidized health insurance through a traditional full-time job. After the expansion, they also had access to Medicaid, potentially allowing them to change their labor supply decisions. Using American Community Survey data, we built a sample of low-income adults who only had access to subsidized health plans through a typical full-time job or the Medicaid Expansion. Adults in the sample are childless, spouseless, non-disabled, and reside in states without confounding state-level policies. To identify the effect of newly-found Medicaid access on this sample, we use a difference-in-difference design from Callaway and Sant’Anna (2021). We find that the expansion had a statistically insignificant effect on the share of our sample in several labor market arrangements: traditional full-time employment, part-time employment, self-employment, unemployment, and not participating in the labor force. These results are robust to including pre-treatment covariates and adjustments to our underlying sample framework. We further decompose treatment effects into short- and long-term effects and find both are statistically insignificant. We conclude that Medicaid Expansion had a negligible impact on both the work arrangements for low-income workers.
Essays in macroeconomics.
(2010-08) Rothert, Jacek
In the first chapter of the thesis I develop a model of switching between good and bad policy regimes where transition probabilities are endogenous. A politician chooses a policy regime that affects its own and households' payoffs. Households face a sequence of politicians, observe regime with noise, and decide whether or not to change the government. The decision to switch depends on the expectation of choices of future politicians, which in turn depend on households switching decisions. I characterize equilibria and show how switching probabilities depend on fundamentals (preferences and technology). Model implications about output volatility in a cross-section of countries are supported by the data. The second chapter of the thesis is co-authored with Jacob Short. We address the puzzle that the developing countries experiencing rapid TFP growth tend to run current account surpluses. This finding is puzzling in the context of the neoclassical growth model, which predicts that these countries should be net borrowers (Gourinchas and Jeanne, 2009). We account for this puzzle by introducing a non-tradable sector to an otherwise standard growth model. We propose that complementarity between tradable and non-tradable goods is key. With an initially underdeveloped non-tradable sector, a representative household is willing to trade a portion of current tradable output in exchange for tradable goods in the future when its production of non-tradable goods increases. A drawback of the simplest version of the model is that faster growing countries experience a reduction in the relative price of non-tradable goods.
Essays in the Macroeconomics of Health Care
(2019-06) Nygaard, Vegard Mokleiv
This dissertation consists of three essays that study the macroeconomics of health care. The first essay studies how policies can be designed to reduce differences in life expectancy across income groups in the United States and examines what the consequences of these policies are for welfare and the macroeconomy. Using a calibrated structural life cycle model with incomplete markets, heterogeneous agents, and endogenous health, I find that a universal health insurance reform leads to higher life expectancy, lower life expectancy inequality, lower health care spending, higher GDP per capita, and higher welfare, even after controlling for the increased tax burden needed to finance the reform. The second essay develops a structural life cycle model with incomplete markets and heterogeneous agents to study how the ability to file for medical bankruptcy affects incentives to purchase health insurance. I find that the ability to file for medical bankruptcy crowds out private health insurance coverage. The majority of the population, however, is better off in the economy with medical bankruptcy because of the implicit insurance provided by this option. Finally, motivated by the considerable heterogeneity in GDP per capita across the states of the US, the third essay develops a model to quantify the welfare differences across the states as measured by the expected lifetime utility of being born in a particular state. Using a calibrated version of the model that allows for state-specific variation in mortality risk, consumption uncertainty, and educational attainment, I document large and persistent heterogeneity in welfare across the states of the US.
Essays on dynamic macroeconomics.
(2010-05) Elgin, Ceyhun
This dissertation, titled ”Essays on Dynamic Macroeconomics” is comprised of three papers which share the common ground of employing tools of modern dynamic macroeconomics. All the three papers apply modern technical tools of macroeconomics in dynamic environments to different macroeconomic problems and observations, develop mechanisms and models to account for these observations and finally test explanatory powers of the provided mechanisms. The first paper, titled ”Political Turnover, Taxes, and the Shadow Economy” is motivated from several cross-section empirical studies which argue that a higher tax burden or different indicators of statutory tax rates are associated with a smaller informal economy. In the paper I show that the turnover of governments provides the key to understanding this relation. To this end, I present evidence that once political turnover is controlled for, the data shows no association between the tax burden and the size of the informal economy. This result is empirically robust in a panel data consisting of 80 countries and 5 years. To account for this observation, I develop a dynamic political economy model with two political parties alternating in office. In equilibrium, if the incumbent party faces a higher probability of staying in office, it sets a higher tax rate to invest more in productive public capital, while spending less for current office rent. I argue that public capital is mainly utilized by the formal sector and this implies that countries in which incumbent parties are more likely to stay in power, have a higher tax burden but a smaller informal sector. Finally, I compare the model against the data and present evidence that my theory is consistent with empirical observations.In the second paper, titled ”A Theory of Economic Development with Endogenous Fertility”, I integrate two existing theories of economic development to account for the time-series evolution of output, fertility and population in transition through the industrialization of an economy. Specifically, I extend a standard two-sector overlapping generations model with endogenous fertility and human capital decisions. Initially, the aggregate human capital and return to education are low and parents invest in quantity of children. Once sufficient human capital is accumulated, with the activation of the modern human capital intensive sector, parents start to invest in quality of their children. The simulation of the model economy successfully captures the evolution of fertility, population and GDP of the British economy between 1750 and 2000. Finally, in the third chapter, titled ”Not-Quite-Great Depressions of Turkey”, which is based on a paper written together with my coauthor Deniz C¸ i¸cek, following the great depressions methodology we use growth accounting and perfect foresight dynamic general equilibrium models to study growth performance of Turkey from 1968 to 2004. We calculate the total factor productivity from the growth accounting exercise and obtain the consumption tax rate and the effective marginal tax rates on labor and capital income from the data and feed them into our model. Our benchmark model without any frictions and taxes accounts for 86% of the observed change in the growth rate of GDP per-working age person from 1968 to 2004 and once we extend the model with taxes and capital adjustment costs it accounts for 60% of the observed reduction in hours worked per-working age person and 35% of the change in the growth rate of capital-output ratio from 1968 to 2004. Also, we identify that the Turkish economy experienced a depression from 1976 to 1984 and the extended model performs remarkably well to account for the observed change in GDP per-working age person, capitaloutput ratio and hours worked during this depression period. Our findings generally suggest that rigidities affecting capital accumulation and government policies using distortionary taxes have a crucial role in explaining the evolution of the selected variables of the Turkish economy.
Essays on Endogenously Incomplete Markets
(2016-07) Kirpalani, Rishabh
The three chapters in this dissertation constitute a study of macroeconomic models with markets that are endogenously incomplete. Chapter 2 provides microfoundations for two types of widely used incomplete market models while chapter 3 studies the role for policy in endogenously incomplete models. Chapter 4 examines the existence of multiplicity in such models and shows how this can provide an endogenous source of aggregate fluctuations in such models.
Essays on Financial Intermediation and Taxation
(2020-08) Garcia Villegas, Salomon
This dissertation consists of three chapters. In the first chapter, I study how the liquidity provision from securitization accounts for aggregate fluctuations in mortgage credit in the United States. For this, I develop a dynamic general equilibrium model of banking with an endogenous securitization market. With income and default rate shocks as observed in the data, the model replicates two-thirds of the aggregate contraction of mortgage credit to households observed during the Great Recession. Moreover, I find that the liquidity dry up arising from the collapse of the securitization market accounted for thirty percent of the contraction of mortgage credit. In the second chapter, I study how information frictions in the securitization market can amplify the response of mortgage credit supply to house price shocks. For this I model securitization as an optimal contracting problem between investors and banks. I find that adverse selection amplifies by a factor of two the response of a bank's loan originations to house price shocks. The model is informative of how information problems in the secondary market can induce large fluctuations in the supply of credit. In the third chapter (joint with Jose Casco), we document that the average corporate income tax rate has declined by approximately forty percent from 1980 to 2016 in the United States. At the same time, we observe that most states have gradually shifted towards imposing a sales-only apportionment weight on multi-state firms. We ask whether these patterns are consistent with states competing in setting their corporate tax policy. Empirically, we find evidence of strategic interaction in setting tax policies between neighboring states. Theoretically, we show that moving towards a sales-only apportionment scheme is consistent with the prediction of a dynamic general equilibrium model of tax competition that incorporates the Formula Apportionment rule.
Essays on Labor Market Frictions and Institutions
(2016-06) Xie, Leiyu
The U.S. government makes unemployment insurance (UI) more generous during recessions. In this thesis I study the interaction between unemployment insurance policies and labor market dynamics in a macroeconomic context. The first chapter examines government commitment and its role in shaping the dynamics of optimal UI over the business cycle. The second chapter proposes a quantitative theory featuring time-consistent policy to rationalize the increased generosity of UI benefit duration during recessions. The final chapter explores the link between allowing unemployed workers to keep uncollected UI benefits and future job-search incentives.
Essays on Labor Market Frictions and Macroeconomics
(2015-08) Seliski, John
This dissertation investigates the macroeconomic consequences of frictional labor markets in the United States and in Europe. It consists of three essays. In Chapter 2, Jiwoon Kim and I develop a model with both frictional labor markets and financial frictions to explore how the dynamics of real and financial variables are affected by `financial shocks'. We evaluate how important the inclusion of financial shocks is in accounting for labor market fluctuations by using a standard real business cycle model with search and matching as a benchmark. We find that the inclusion of financial frictions and financial shocks improves a standard matching model's ability to account for the observed dynamics of labor market variables. Financial frictions are able to generate more volatile hours per worker, labor shares, and employment relative to our benchmark matching model, bringing simulated moments closer to observed fluctuations. Chapter 3 documents the cyclical properties of labor market flows in the United States and in Europe at business cycle frequencies. I create comparable quarterly estimates of the hazard rates across 19 European countries and the United States using the methodology pioneered by Shimer (2012). I then quantitatively assess the contribution of the job-finding and separation rates to the variability of unemployment over the business cycle in each country. In the United States, the job-finding hazard rate accounted for over three-quarters of the variation in unemployment while the separation rate accounted for the remainder. Most European labor markets have a 60:40 split between the job-finding rate and the separation rate, respectively. Chapter 4 studies policy issues related to precarious forms of employment over a worker's life-cycle. A search and matching model with dual labor markets, overlapping generations of workers, and general and match-specific skills is presented in order to quantify and evaluate the effects of loosening restrictions on temporary forms of employment. Despite the increased likelihood of being employed, workers will be worse off due to a greater share of workers starting their careers in low-paying temporary positions, limiting young workers' ability to upgrade their skill level early in the life-cycle.
Essays on Macroeconomics With Firm Heterogeneity
(2020-06) Zhang, Lichen
This dissertation consists of three chapters. Chapter One surveys the literature on quantitative heterogeneous agent macroeconomics, with a focus on firm heterogeneity. Chapters Two and Three are essays, both of which contribute to the research agenda that centers on using micro data to inform aggregate structural models, with an emphasis on the link between micro-level heterogeneity and macro- level outcomes. In Chapter Two, I propose a quantitative general equilibrium model of firm dynamics and show that intangibles play a key role in understanding two important macroeconomic trends of the U.S business sector over the past three decades: (i) declined measured labor income share and (ii) increased concentration in terms of the employment share and market share of the largest firms. The model is consistent with important aspects of firm behavior at the micro level. I show that an intangible-investment-specific technical change (IISTC) shifts the distribution of firms toward large, intangible-intensive firms with low labor shares. When the IISTC is calibrated to match the observed decline in the relative price of intangible investment goods, the model accounts for more than 90% of the observed rise in concentration and around 50% of the observed decline in the measured labor share. In Chapter Three, Shijun Gu and I examine the secular decline in new business creation. The U.S. economy has experienced a significant drop in the formation of new businesses since the early 1980s. However, there is no consensus regarding the main driving force. While both changes in entry costs and the persistence of shocks to productivity are potential candidates, neither can be directly observed from the data. Furthermore, their implications on aggregate productivity and welfare could be vastly different. We develop a quantitative general equilibrium model of entrepreneurship to identify and quantify their relative importance in explaining the observed declines in new business creation. We find that the relative contribution of higher entry cost is 1.5 to 2 times larger than that of higher persistence of shocks. Moreover, the increases in entry cost have led entrepreneurs to pay 15% more in terms of their first year’s profit to start a business.
Essays on public economics
(2013-05) Tsujiyama, Hitoshi

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