Essays in Macroeconomics and Factor Misallocation

Abstract

Far from operating under ideal conditions, households and firms conduct their daily activities facing a wide variety of frictions that hinder efficient resource allocation. Regulatory forces as well as market incompleteness, directly affect the determination of prices and quantities in any given market. The three chapters in this dissertation are motivated by issues that span this gamut. The first chapter investigates the role of labor market and financial market frictions in aggregate macroeconomic outcomes. In particular, this chapter explores the interaction of two forces: lack of access to borrowing for small and medium sized firms, coupled with unionized wages. The analysis is centered around France, where recent labor market reforms make it an ideal case study to evaluate the aggregate effect that such institutional changes may yield. The second chapter is devoted to the U.S. economy, with its focus on low and mid income households. This chapter studies the market for manufactured (both modular and panelized) homes in the U.S. This industry, which saw its peak in the late 60s, stands as a potential solution for the housing and homelessness crisis that is hitting the U.S. Yet, financing conditions in this industry are very different from standard credit conditions in the traditional housing market. Chapter two attempts to measure the welfare consequences of lacking a fully developed credit market for affordable homes, with its focus on the bottom half of the U.S. income distribution. Attention here is placed on interest rates, duration of the loans and tax deductions, all of which, differ greatly between the two housing market segments. Finally, the third chapter explores the consequences of bad lending practices (the so called \textit{zombie lending} practices) that the banking industry sometimes engages in, and aims at quantifying the aggregate consequences of such practices at a macroeconomic level. Here, the case study is centered around Italy, a country where, according to recent evidence, these lending practices were particularly prevalent and harmful for the national economy.