Essays in macroeconomics [electronic resource]
Keywords: Economics

The dissertation consists of four chapters. The first chapter studies the effects of government intervention in the housing market on prices, quantities and welfare in a general equilibrium model with heterogeneous agents. The chapter considers (i) the tax-deductibility of mortgage interest payments, and (ii) the exclusion of owner-occupied rents from taxation. It goes beyond the existing literature and studies both steady state effects as well as effects along the transition between steady states. The results highlight the importance of focusing on the transition period for policy analysis. The second chapter proposes uncertainty shocks as a new impulse driving business cycles. First, we demonstrate that uncertainty, measured by a number of proxies is strongly countercyclical. Second, we build a dynamic stochastic general equilibrium model that extends the benchmark neoclassical growth model along two dimensions. It allows for the existence of heterogeneous firms with nonconvex adjustment costs in both capital and labor and time-variation in uncertainty that is modeled as a change in the variance of innovations to productivity. We find that increases in uncertainty lead to large drops in economic activity. This occurs because a rise in uncertainty makes firms cautious, leading them to pause hiring and investment. It also reduces the reallocation of capital and labor across firms, leading to large falls in productivity growth. Finally, we show that because uncertainty makes firms cautious it significantly reduces the response of the economy to stimulative policy, leading to pro-cyclical policy multipliers. In the third chapter we present a model in which net business formation is endogenously procyclical. Variations in the number of operating firms lead to countercyclical variations in markups that give rise to endogenous procyclical movements in measured total factor productivity (TFP). Based on this result, the paper suggests a simple structural decomposition of variations in TFP into those originating from exogenous shocks and those originating endogenously from the interaction between firms' entry and exit decisions and the degree of competition. The decomposition suggests that around 40% of the movements in measured TFP can be attributed to this interaction. Moreover, the paper analyzes the effects on (i) the measurement of the volatility of exogenous shocks in the U.S. economy and (ii) the magnification of shocks over the business cycle. The final chapter contains an extension of the previous chapter. The two sector model presented in this part suggests a simple structural decomposition of movements in the price of investment goods into exogenous and endogenous sources. The endogenous fluctuations arise in the presence of countercyclical markups which vary differently across the consumption and investment sectors. In turn, the movements in the markups are due to endogenous procyclical net business formation. The model, while being consistent with the countercyclicality of the price of investment goods, suggests that about a quarter of the movement in the price series can be attributed to this endogenous mechanism.