Download or read book Essays on Labour Market Frictions and Fiscal Policy written by Meri Obstbaum and published by . This book was released on 2012 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Labor Market Frictions Under Firm Entry and Financial Business Cycles written by Jeremy Rastouil and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the Great Recession, the interactions between housing, labor and entry highlight the existence of narrow propagation channels between these markets. The aim of this thesis is to shed a light on labor market interactions with firm entry and financial business cycles, by building on the recent theoretical and empirical of DSGE models. In the first chapter, we have found evidence of the key role of the net entry as an amplifying mechanism for employment dynamics. Introducing search and matching frictions, we have studied from a new perspective the cyclicality of the mark-up compared to previous researches that use Walrasian labor market. We found a less countercyclical markup due to the acyclical aspect of the marginal cost in the DMP framework and a reduced role according to firm's entry in the cyclicality of the markup. In the second chapter, we have linked the borrowing capacity of households to their employment situation on the labor market. With this new microfoundation of the collateral constraint, new matches on the labor market translate into more mortgages, while separation induces an exclusion from financial markets for jobseekers. As a result, the LTV becomes endogenous by responding procyclically to employment fluctuations. We have shown that this device is empirically relevant and solves the anomalies of the standard collateral constraint. In the last chapter, we extend the analysis developed in the previous one by integrating collateral constrained firms in order to have a more complete financial business cycle. The first result is that an entrepreneur collateral constraint integrating capital, real commercial estate and wage bill in advance is empirically relevant compared to the collateral literature associated to the labor market which does not consider these three assets. The second finding is the role of the housing price and credit squeezes in the rise of the unemployment rate during the Great Recession. The last two chapters have important implications for economic policy. A structural deregulation reform in the labor market induces a significant rise in the debt level for households and housing price, combined with a substantial rise of firm debt. Our approach allows us to reveal that a macroprudential policy aiming to tighten the LTV ratio for household borrowers has positive effects in the long run for output and employment, while tightening LTV ratios for entrepreneurs leads to the opposite effect.

Download or read book Essays on Labour Market and Financial Frictions written by Alireza Sepahsalari and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Fiscal Policy Monetary Policy and Currency Unions written by Mahama Abdel Samir Sidbéwendé Bandaogo and published by . This book was released on 2016 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation I study how economic activity outside of government control --informality-- impacts policy-making in a small open economy. I also study the impact of labor mobility in a currency union on the welfare of the union. Chapter 1 is concerned with the impact of informality on the Ramsey optimal fiscal and monetary policy. In particular, I ask: how does economic activity outside of government control affect the conduct of fiscal and monetary policy? I study this question in a New Keynesian, small open economy model. The model is assumed to feature informality in both goods and labor markets. A non-traded sector produces a non-taxed informal good. The traded sector produces a formal good and is subject to taxation, but it can hire workers using both formal and informal contracts. I show that the presence of informality decreases the optimal tax rate and increases macroeconomic volatility. Moreover, when the country cannot credibly precommit to the optimal policy, informality significantly increases the incentive to peg the currency. This result can help explain why many sub-Saharan African countries have plans to either expand existing currency unions or to form new ones. In Chapter 1 I also investigate the impact of the informal sector on fiscal policy: the tax rate levied by the government in the formal sector and the amount of public debt. With the steady state of the theoretical model described above, I show that the presence of informality decreases the optimal tax rate and increases the level of public debt. Using a panel data of developing countries, I empirically document the negative relationship between the size of the informal sector on the tax rate and its positive relationship with public debt. Chapter 2 is concerned with how migration within a currency union affects welfare across the union. In particular, I study this question in this paper with a New Keynesian currency union model. The union consists of two countries whose economies are characterized by labor market frictions. One country member has a higher job-finding rate and a lower unemployment rate compared to the other country, hence unemployed agents in the latter have an incentive to relocate to the former. I show that when firms have the ability to hire workers from abroad and when unemployed agents can relocate to a different country, the negative impact of asymmetric shocks is significantly reduced, improving welfare across the union on average.

Download or read book Essays on Markets with Frictions written by Christoph Ungerer and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The classical treatment of market transactions in economics presumes that buyers and sellers engage in transactions instantly and at no cost. In a series of applications in the housing market, the labour market and the market for corporate bonds, this thesis shows that relaxing this assumption has important implications for Macroeconomics and Finance. The first chapter combines theory and empirical evidence to show that search frictions in the housing market imply a housing liquidity channel of monetary policy transmission. Expansionary monetary policy attracts buyers to the housing market, raising housing liquidity. Higher housing sale rates in turn allow lenders to threaten foreclosure more effectively, because the expected carrying costs on foreclosure inventory are lower. Ex-ante, this makes banks willing to offer larger loans, stimulating aggregate demand. The second chapter uses a heterogeneous firm industry model to explore how the macroeconomic response to a temporary employer payroll tax cut depends on the hiring and firing costs faced by firms. Controversially, the presence of non-convex labour adjustment costs suggests that tax cuts create fewer jobs in recessions. When firms hoard labour during downturns, they do not respond to marginal tax cuts by hiring additional workers. The third chapter develops a theory in which trader career concerns generate an endogenous transaction friction. Traders are reluctant to sell assets below historical purchase price, since realizing a loss signals to the employer that the trader is incompetent. The chapter documents empirically several properties of corporate bond transaction data consistent with this theory of career-concerned traders.

Download or read book Essays on Macroeconomic Stabilization written by Rohan Kekre and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by policy debates emerging from the U.S. Great Recession and Eurozone crisis, I study the stabilization role of monetary, fiscal, and macroprudential policies in response to short-run fluctuations. In the first essay on "Unemployment Insurance in Macroeconomic Stabilization", I characterize the role of unemployment insurance (UI) generosity as a particular instrument of fiscal policy, and use my framework to quantitatively evaluate the employment and welfare effects of UI extensions in the U.S. over 2008-13. In the second essay on "Labor Market Frictions in a Monetary Union", I study stabilization trade-offs and optimal monetary policy in a monetary union where labor markets are frictional and heterogeneous across member states, with implications for the sustainability of the Euro and policy of the ECB. In the third essay on "Firm vs. Bank Leverage over the Business Cycle", I develop a general equilibrium model explaining the contrasting cyclical behavior of non-financial corporate and bank leverage in U.S. data, and study its implications for macroprudential regulation in banking. Methodologically, these essays share a focus on building theoretical models of closed and open economies to address policy-relevant questions in macroeconomics, drawing on additional ideas from related fields such as public economics and finance.

Download or read book Essays on Labour Market and Financial Frictions written by A. Sepahsalari and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book ESSAYS in Lending Frictions The Labor Market and Monetary Policy written by and published by . This book was released on 2015 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Great Recession of 2008-09 in the U.S. was characterized by high and persistent unemployment and lack of bank lending due to liquidity issues. The recession was preceded by a housing crisis that quickly spread to the banking and broader financial sectors. We attempt to account for the depth and persistence of unemployment by considering the relationship between credit and firm hiring explicitly. To do so, we introduce search and matching frictions to characterize the dynamics of credit markets in a series of macroeconomic models that present different types of distortions in the labor market as well as in the interbank market. We obtain a novel propagation and amplification mechanism of a financial crisis associated to an inefficiency wedge that affects the aggregate production function of the economy and depends directly on credit conditions.

Download or read book Essays on Macroeconomic Policies and Household Heterogeneity written by Gergő Motyovszki and published by . This book was released on 2021 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is composed of three independent chapters, but all centered around the broader topic of how macroeconomic policies interact with various aspects of household heterogeneity. Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high and less-skilled workers. In particular, this effect is prominent in sectors intensive in less-skilled labor, that exhibit high degree of capital-skill complementarity (CSC) and are subject to matching inefficiencies. To rationalize these findings we build a New Keynesian DSGE model with asymmetric search and matching (SAM) frictions across the two types of workers and CSC in the production function. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. Monetary-Fiscal Interactions and Redistribution in Small Open Economies Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficitfinancing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies. Weak Wage Recovery and Precautionary Motives after a Credit Crunch During the economic recovery following the financial crisis many advanced economies saw subdued wage dynamics, in spite of falling unemployment and an increasingly tight labour market. We propose a mechanism which can account for this puzzle and work against usual aggregate demand channels. In a heterogeneous agent model with incomplete markets we endogenize uninsurable idiosyncratic risk through search-and-matching (SAM) frictions in the labour market. In this setting, apart from the usual precautionary saving behaviour, households can self-insure also by settling for lower wages in order to secure a job and thereby avoid becoming borrowing constrained. This channel is especially pronounced for asset-poor agents, already close to the constraint. We introduce a credit crunch into this framework modelled as a gradual tightening of the borrowing constraint (and utilizing a continuous time approach, known as HACT). The perfect foresight transition dynamics feature falling wages despite a tightening labour market and expanding employment. As households suddenly find themselves closer to the borrowing constraint, the increased precautionary motive drives them to accept lower wages in the bargaining process, while firms respond to this by posting more vacancies, leading to a tighter labour market and falling unemployment. If the household deleveraging pressure is persistent enough after the credit crunch, it can explain the weak wage recovery in spite of already stronger aggregate demand.

Download or read book Essays on Firm Dynamics Financial Frictions and the Labor Market written by Dongchen Zhao and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters. The first chapter concerns the secular changes in the U.S. firm size distribution and firm dynamics. This chapter sets up a quantitative model of firm dynamics with debt heterogeneity to study the implications of changes in real interest rates for the firm size distribution and firm dynamics. It shows that the decline in long-term real interest rates since the early 1980s can account for a significant fraction of the shift in employment shares to large firms as well as the decline in firms per capita and firm entry rates experienced in the U.S. over the same period. In the model, firms endogenously choose financial intermediaries issuing debt with either earnings-based (EBC) or asset-based (ABC) borrowing constraints. The two types of constraints arise naturally from the imperfect enforceability of debt contracts and are in line with recent empirical findings. A decline in real interest rates benefits firms with EBC more because they are not constrained by their assets and can expand more due to increased earnings. Since firms with higher earnings optimally choose earnings-based lending, the decline in real interest rates shifts employment shares to larger firms. Moreover, the growth of large firms crowds out smaller firms and firm entry through general equilibrium effects. The paper tests the mechanism in cross-country data from the OECD and finds a stronger association between the decline in real interest rates and changes in firm dynamics, especially in countries with deeper credit markets. In the second chapter, I study the effects of government regulations on firm dynamism. The impact of government regulations on the economy is a central topic in policy debates. However, due to the endogeneity of regulations and challenges in measuring them, these debates remain contentious. This paper establishes the causal effects of government regulations on firm dynamism by employing a novel shift-share (Bartik) instrument in conjunction with the RegData dataset, which quantifies regulations based on the text of federal regulatory documents. The primary assumption for identification is that, for each sector, the exposure to regulations from different government agencies at the beginning of the period is exogenous to any confounding factors. The findings reveal that government regulatory restrictions significantly increase firm exit rates and discourage the formation of establishments, while having no substantial impact on firm entry. Furthermore, these restrictions contribute to reduced job creation, elevated job destruction, and diminished overall employment. These effects are consistently observed across various age groups. The results lend support to the idea that government regulations can raise production costs for firms and/or enhance the monopolistic power of certain companies. Both mechanisms can diminish the profits of affected firms, leading to increased firm exit rates and reduced labor demand. Additionally, the findings refute the interpretation of regulations as solely serving as entry barriers. The final chapter of the dissertation investigates the labor market outcomes for involuntary part-time workers and their subsequent effects on welfare levels. Through an analysis of survey data, I demonstrate that involuntary part-time workers exhibit reservation wages comparable to those of unemployed workers. This similarity largely stems from parallel wage offers and offer arrival rates. Contrary to previous research, this finding indicates that involuntary part-time workers experience welfare levels akin to unemployed workers. One possible explanation for this discrepancy lies in the methodology of prior studies. Conclusions drawn from earlier research, which primarily focused on the faster transition of involuntary part-time workers into full-time positions compared to other workers, may be flawed. This is because these workers also tend to revert to their previous job types at a faster rate. To further explore the implications of these discoveries, I employ a quantitative search model. The calibrated model supports the assertion that involuntary part-time workers experience welfare levels similar to those of unemployed workers. Furthermore, the model suggests that neither extending unemployment insurance to part-time workers nor enhancing the likelihood that unemployed workers transition to part-time positions would effectively increase the prevalence of full-time employment

Download or read book Essays on Labour Market Effects of Fiscal Policy written by Goher Fatima and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Labor Markets Monetary Policy and Uncertainty written by Neil Ware White (IV) and published by . This book was released on 2018 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines the impacts on the labor market of monetary policy and macroeconomic uncertainty. The first chapter examines how monetary policy shocks in the U.S. affect the flows of workers among three labor market categories--employment, unemployment, and non-participation--and assesses each flow's relative importance to changes in labor market "stock'' variables like the unemployment rate. I find that job loss accounts for the largest portion of monetary policy's effect on labor markets. I develop a New Keynesian model that incorporates these channels and show how a central bank can achieve welfare gains from targeting job loss, rather than output, in an otherwise standard Taylor rule. The second chapter examines the role of monetary policy in "job polarization.'' I argue that contractionary monetary policy has accelerated the decline of employment in routine occupations, which largely affected workers with a high-school degree but no college. In part by disproportionately affecting industries with high shares of routine occupations, contractionary monetary policy shocks lead to large and persistent shifts away from routine employment. Expansionary shocks, on the other hand, have little effect on these industries. Indeed, monetary policy's effect on overall employment is concentrated in routine jobs. These results highlight monetary policy's role in generating fluctuations not only in the level of employment, but also the composition of employment across occupations and industries. The third chapter introduces new direct measures of uncertainty derived from the Michigan Survey of Consumers. The series underlying these new measures are more strongly correlated with economic activity than many other series that are the basis for uncertainty proxies. The survey also facilitates comparison with response dispersion or disagreement, a commonly used proxy for uncertainty in the literature. Dispersion measures have low or negative correlation with direct measures of uncertainty and often have causal effects of opposite sign, suggesting that they are poor proxies for uncertainty. For the measures based on series most closely correlated with economic activity, positive uncertainty shocks are mildly expansionary. This result is robust across identification and estimation strategies and is consistent with "growth options'' theories of the effects of uncertainty.

Download or read book Essays on the Macroeconomics of Labor Market and Firm Dynamics written by Felicien Jesugo Goudou and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to understanding labor market frictions and how these frictions impact macroeconomic aggregates such as unemployment and productivity. It also critically examines environmental policies such as carbon taxes and green financing. The first chapter examines how non-compete contracts signed between employers and employees affect unemployment, productivity, and welfare in the economy. These contracts stipulate that the employee, while under contract, cannot work for a competing employer for a specified period, typically ranging from one to two years after separation from their initial employer. This type of contract is widespread in the United States and affects at least one in five employees in the country. Results show that a high enforceable incidence of these contracts can compress wages and generate unemployment. This is primarily due to the fact that some individuals who have signed such contracts face difficulties in finding new employment after separating from their initial job. The article proposes reducing the duration of the post-employment restrictions of these contracts to mitigate their effects on workers. However, it is worth noting that these contracts partially benefit employers by incentivizing them to invest in employee training, thereby increasing overall productivity. Speaking of employment contracts, the second chapter evaluates the implications of the coexistence of temporary contracts (fixed-term contracts) and permanent contracts (indefinite-term contracts) on worker flows between unemployment, employment, and labor force non-participation over the life-cycle. This analysis is particularly important due to the effects of these flows on aggregate employment and wages over the life-cycle. It is found that transitions of individuals from permanent employment to unemployment are the most significant factor explaining aggregate employment over the life-cycle. Any policy aimed at increasing employment should target this flow of workers. Moreover, the transition of individuals from temporary employment to unemployment is significant in explaining the low employment of young individuals in European countries like France, especially for those with higher levels of education. The article goes further by constructing a model that explains the observed transition profiles during agents' life-cycle and analyzes how the effects linked to employment protection reforms in European countries are distributed among workers based on their level of education and age. Finally, the third chapter provides a critical assessment of environmental policies such as emissions taxes on production units and green financing. The article shows that despite their effectiveness in reducing emissions, these policies can negatively impact resource allocation, such as capital, among firms, thus reducing aggregate productivity. This is because some highly productive but seriously financially constrained firms may struggle to invest in emission reduction technology, while less productive but wealthy entrepreneurs invest more easily. The burden of emissions-related fiscal measures forces the former to exit the market, thereby reducing productivity. This suggests that other policies, such as green subsidies, are important to mitigate these potential distortions.

Download or read book Essays on the Macroeconomics of Market Reforms and Self employment written by Yurim Lee and published by . This book was released on 2020 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: The labor market is undoubtedly the closest and most intimate aspect of the economy that the individuals face. The type of employment has also evolved over time alongside the labor market. While much study has been focused on the labor market, not enough light has been shed on self-employment, which is unique in that it is a form of employment at the borderline of workers and firms. Relating the motivation for starting one's own business to the possibility of finding wage-paying jobs is even rarer, as much of previous literature see self-employment from the perspective of credit constraints or avoiding costly labor and tax regulations. As the share of self-employment is non-negligible (which is especially true in developing, small open economies), a proper understanding of self-employment is crucial in successfully carrying out structural reforms as well. With this agenda in mind, this dissertation seeks to understand two main issues. First is exploring how individuals' decisions towards choosing into self-employment can be tied to the state of the labor market (i.e. the probability of finding wage-paying work). This additional source of employment eventually affects the composition of the labor market and thus the business cycle dynamics. The second topic of the dissertation is studying the consequences of such self-employment on the macroeconomic efficiency and the outcomes of structural reforms on the product and labor markets. The first chapter focuses on the consequences of different decisions regarding the international financial market integration and exchange rate policy in a small open economy, Korea. The chapter is targeted towards a deeper understanding of a combination of policies under two important ingredients in a Dynamic Stochastic General Equilibrium (DSGE) model: producer entry into domestic and export markets and labor market frictions. Results show that under flexible exchange rates, access to international financial markets increases the volatility of both business creation and the number of exporting plants, with the effects on employment volatility being more modest. The exchange rate peg can have unfavorable consequences for the effects of terms of trade appreciation, and more financial integration is not necessarily beneficial under a peg. The combination of a floating exchange rate and internationally complete markets would be the best scenario for Korea among those the chapter focuses on. The second chapter introduces workers' endogenous transition in and out of self-employment in the traditional Diamond-Mortensen-Pissarides (DMP) framework, while keeping the crucial ingredients in a closed economy DSGE framework as explored in \autoref{chp:fmkorea}. Under such settings, labor market composition becomes more volatile, leading to greater fluctuations and higher welfare costs from business cycles. A comparison with a centrally planned economy shows that self-employment becomes an additional source of inefficiency in the economy. The lack of job creation by the self-employed implies reforms being less effective when targeted towards them. The third chapter brings together the first two chapters by allowing self-employment in a small open economy, calibrated for Korea. Specifically, the hiring firms produce tradable goods and engage in exporting, while the self-employed produce nontradable goods and only serve the domestic market. The model displays a much higher rate of self-employment (around 36% of employment) compared to the closed economy calibrated for the U.S. in the second chapter. It also shows the real exchange rate appreciating and terms of trade depreciating under financial autarky after a productivity shock, where the size of the fluctuations depends on the firm creation in both tradable and nontradable sectors. Allowing international borrowing leads to more consumption smoothing but relatively less entry in both hiring and self-employed firms, with unemployment becoming less volatile and terms of trade initially appreciating.

Download or read book Essays in Macroeconomics and Financial Frictions written by Christine N. Tewfik and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation is comprised of three papers on the causes and consequences of the U.S. Great Recession. The emphasis is on the role that financial frictions play in magnifying financial shocks, as well as in informing the effectiveness of potential policies. Chapter 1, "Financial Frictions, Investment Delay and Asset Market Interventions," co-authored with Shouyong Shi, studies the role of investment delay in propagating different types of financial shocks, and how this role impacts the effectiveness of asset market interventions. The topic is motivated by the observation that, during the Great Recession, governments conducted large-scale asset market interventions. The aim was to increase the level of liquidity in the asset market and make it easier for firms to obtain financing. However, firms were observed to have delayed investment by hoarding liquid funds, part of which were obtained through the interventions. We construct a dynamic macro model to incorporate financial frictions and investment delay. Investment is undertaken by entrepreneurs who face liquidity frictions in the equity market and a collateral constraint in the debt market. After calibrating the model to the U.S. data, we quantitatively examine how aggregate activity is affected by two types of financial shocks: (i) a shock to equity liquidity, and (ii) a shock to entrepreneurs' borrowing capacity. We then analyze the effectiveness of government interventions in the asset market after such financial shocks. In particular, we compare the effects of government purchases of private equity and of private debt in the open market. In addition, we examine how these effects of government interventions depend on the option to delay investment. In Chapter 2, "Housing Liquidity and Unemployment: The Role of Firm Financial Frictions," I build upon the role that firms' ability to obtain funding plays in the severity of the Great Recession. I focus specifically on how the housing crisis reduced the ability of firms to obtain funding, and the consequences for unemployment. An important feature I focus on is the role of housing liquidity, or how easy it is to sell or buy a house. I analyze how an initial fall in housing market liquidity, linked to rising foreclosure costs for banks, affects labor market outcomes, which can have further feedback effects. I focus on the role that firm financial frictions play in these feedback effects. To this end, I construct a dynamic macro model that incorporates frictional housing and labor markets, as well as firm financial frictions. Mortgages are obtained from banks that incur foreclosure costs in the event of default. Foreclosure costs also affect the ease with which firms can borrow, and this influences their hiring decisions. I calibrate the model to U.S. data, and find that a rise in foreclosure costs that generates a 10% fall in the firm loan-to-output ratio results in a 3 percentage point rise in the unemployment rate. The rise in unemployment makes it more difficult for indebted owners to avoid defaulting on their mortgage. This rise in default, on the order of 20 percent, creates further slack in the housing market by both increasing the number of houses on the market and reducing the amount of buyers. Consequently, there are large drops in housing prices and in the size of mortgage loans. Notably, when firm financial frictions are absent, I observe a counter-factual fall in the unemployment rate, which mitigates the effects on the housing market, and even results in a fall in the mortgage default rate. The results highlight the importance of the impact of the housing market crisis on a firm's willingness to hire, and how firms' limited access to credit magnifies the initial housing shock. In Chapter 3, "Housing Market Distress and Unemployment: A Dynamic Analysis," I add to the contributions of my second paper, and extend the analysis to determine the dynamic effects of the housing crisis on unemployment. In Chapter 2, I focused on comparing stationary equilibria when there is a rise in the foreclosure costs associated with mortgage default. However, a full analysis must also take into account the dynamic effects of the shock. In order to do the dynamic analysis, I modify the model in my job market paper to satisfy the conditions of block recursivity. I do this by incorporating Hedlund's (2016) technique of introducing real estate agents in the housing market that match separately with buyers and sellers. Doing this makes the model's endogenous variables independent of the distribution of households and firms. Rather, the impact of the distribution is summarized by the shadow value of housing. This greatly improves the tractability of the model, and allows me to compute the dynamic response to a fall in a bank's ability to sell a foreclosed house, thus raising the costs of mortgage default. I find that the results are largely dependent on the size and persistence of the shock, as well as the level of firm financial frictions that are present. When firm financial frictions are high, as represented by the presence of an interest rate premium charged to firms, and the initial shock is large, the shock is transferred to firms via an endogenous rise in the cost of renting capital. Firms scale back on production and reduce employment. The rise in unemployment increases the debt burden for households with large mortgages. They can try and sell, but find it difficult to do so because they must sell at a high price to be able to pay off their debt. If they fail, they are forced to default, thus further raising the mortgage costs of banks, further reducing resources to firms, and propagating the initial shock. However, the extent of the propagation is limited; once the shock wears off, the economy recovers to its pre-crisis levels within two quarters. I discuss the reasons why, and what elements would be needed for greater persistence.

Download or read book Essays on Labor Market Frictions Technological Change and Macroeconomic Fluctuations written by Juuso Vanhala and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Real Business Cycle Modeling and the Public Sector written by Aleksandar Zdravkov Vasilev and published by . This book was released on 2013 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt: