Essays on Macroeconomics

Abstract

This thesis contains three chapters. In Chapter 1, I introduce a novel growth model where firms search for inventors in a frictional labor market, and where the efficiency of innovation depends on the quality of the match between the inventor and firm. The model features both knowledge spillovers and congestion in the labor market, hence the resources invested in search can be either too low or too high. I use the model to quantify this tradeoff and to study what policies can rectify the inefficiencies in this market. I document that inventors are 40% more productive when moving across firms, a finding not driven by differences in firm innovativeness. I find that search frictions and the resulting misallocation of inventors across firms are of first-order importance for growth: shutting down search frictions and moving to a world where inventors are perfectly allocated across firms increases growth from 2.0 to 2.6 percent. Moreover, I find that firms invest too little in searching for inventors, and that conventional R&D subsidies do not address the inefficiencies in the market for inventors. Finally, I show that partial-equilibrium effects of R&D subsidies dramatically overstate their general equilibrium effects due to a novel channel in my model: when firms innovate and creatively destroy their rivals' product lines, they also break their matches with inventors. Chapter 2 is coauthored with Kyle Herkenhoff, Lee Ohanian, and Edward Prescott. Commercial real estate is roughly 20% of the U.S. fixed asset stock and is highly regulated. However, little is known about the quantitative impact of these regulations on economic activity or consumer welfare. This paper develops a spatial general equilibrium model with commercial real estate regulations, congestion effects, and amenities, and uses the near-universe of CoreLogics's commercial, parcel-level, property tax records to construct a quantitative index of commercial real estate regulations for every commercial property. We use our regulation index to rank zoning codes by their stringency, and we use the model to evaluate the positive and normative impacts of local zoning deregulations. Moderately relaxing commercial regulations across all U.S. cities yields large allocative efficiency effects, with output gains of about 3 percent to 6 percent and welfare gains of about 1 percent to 3 percent of lifetime consumption. These findings are robust to 40 percent of the workforce working remotely. In Chapter 3, I ask why health care spending has been going up as a share of GDP, and where it will end up. I use a simple model of structural transformation to decompose the change in health expenditures into two channels: an income effect and a relative price effect. These respectively correspond to the hypotheses that health care spending is going up because the world is getting richer and that health care spending is going up because of Baumol's cost disease. I discipline the model with the cross-section of health care spending across countries, the time series of health spending in the US, and quasi-experimental evidence of the response of health care spending to productivity shocks in non-health care. I find that income effects are dominant and that relative price effects driven by the slower rate of technological progress in health care actually slow health care expenditure growth down.