Essays in macroeconomics

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012.Cataloged from PDF version of thesis.Includes bibliographical references (p. 143-149).This thesis examines questions in macroeconomics motivated by the 2007-2008 financial crisis and its aftermath. Chapter 1 studies the impact of a housing bust on regional labor reallocation and the labor market. I document an empirical fact, which suggests that, by increasing the fraction of households with negative housing equity, a housing bust hinders interregional mobility. I then study a multi-region economy with local labor and housing markets and worker reallocation. A housing bust creates debt overhang for some workers, which distorts their migration decisions and increases aggregate unemployment in the economy. In a calibrated version of the model, I find that the regional reallocation effect of the housing bust can account for between 0.2 and 0.5 percentage points of aggregate unemployment and 0.4 and 1.2 percentage points of unemployment in metropolitan areas experiencing deep local recessions in 2010. Chapter 2 studies a model of endogenous fluctuations in credit market conditions. I consider an economy with productivity heterogeneity and durable capital. Entrepreneurs issue debt to buy capital but have superior information about the distribution of their future productivity and, hence, of their debt repayments. Additionally, limited pledgeability of high output realizations creates a wedge between the valuations of inside and outside investors. The combination of these two frictions leads to a new channel of interaction between the price of capital and the credit market, which in turn leads to multiple equilibria and fluctuations in output, the price of capital, and leverage across equilibria. I then use the model to analyze the effect of unconventional monetary policy by a central bank. Financial instability is often characterized by increased uncertainty, debt rollover difficulties and asset liquidation at depressed prices. Chapter 3, which is a joint work with Felipe Iachan, studies a debt roll-over coordination game with dispersed information and market-determined liquidity conditions. We describe conditions under which an improvement in the precision of individuals' information about financial institutions' fundamentals leads to greater financial stability. For the limiting case of arbitrarily precise private information, that condition obtains a simple form in terms of payoff elasticities. Finally, we discuss the effects of stress tests and the "living will" mandate from the Dodd-Frank act. We conclude that given our framework, the latter policy should have a large positive impact for financial stability.by Plamen T. Nenov.Ph.D

The housing Phillips curve and momentum in the Norwegian housing market

This paper provides descriptive evidence for a housing Phillips curve in Norway, suggesting a negative relationship between the ratio of inventory-to-sales and subsequent house price growth in the market for existing homes. We show that the negative relationship between inventory-to-sales and house price growth in Norway only holds at short horizons, consistent with short-term momentum in the Norwegian housing market. This is in contrast to the U.S. housing market, where the Phillips curve relationship and momentum effects persist over longer horizons. We also examine heterogeneity in the housing Phillips curve and momentum across Norwegian local housing markets and find that the housing Phillips curve is stronger in larger cities. Overall, our findings imply that the Norwegian housing market is less frictional than the U.S. housing market, with homes selling faster on average and house prices responding faster to shocks.publishedVersio

Buying first or selling first in housing markets

Housing transactions by moving homeowners take two steps - buying a new house and selling the old one. This paper argues that the transaction sequence decisions of moving homeowners have important effects on the housing market. Moving homeowners prefer to buy first whenever there are more buyers than sellers in the market. However, this congests the buyer side of the market and increases the buyer-seller ratio, further strengthening the incentives of other moving owners to buy first. This endogenous strategic complementarity leads to multiple steady state equilibria and large fluctuations, which are broadly consistent with stylized facts about the housing cycle

Dividend Signaling and Bank Payouts in the Great Financial Crisis

We study the dividend payouts of U.S. banks during the 2008 financial crisis. Using a difference-in-differences methodology, we shows that banks with higher share of short-term liabilities to total liabilities, which were thus more exposed to the rollover crisis that took place in 2008, increased their dividend payouts relative to less exposed banks. This relative increase in dividend payouts is concentrated in relatively cash-rich banks. The dividend payout increase was associated with a short-run increase in stock valuations. We argue that this front-loading of dividends of more exposed banks is consistent with a theory of dividend payouts, in which the payout policy has a (short-run) stabilizing role on the bank’s liquidity position by signaling information to short-term lenders about the bank’s available liquidity.publishedVersio

Estimating the elasticity of intertemporal substitution using dividend tax news shocks

This paper studies the spending response to news about a dividend tax reform in order to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, implemented in 2006, and raised the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households with a high share of dividends to income before the reform to a control group. Exposed households responded to the reform by increasing spending after the news and reducing spending after implementation. We interpret our findings using a capitalist-worker framework with dividend tax news shocks. The model can replicate the spending response to the dividend tax news only if the EIS is greater than one, with a baseline estimate of around 2

Improvement of design parameters of planetary multipliers and reducers, using specialized author’s software for joined gears drives

The present work discus two indicative cases from the practice, in which the final results significantly exceed those of the "base" multiplier and the „initial“ reducer. The constructions are promising for the development of electricity generation from tides, respectively - for the electric hoist industry. The first reconstruction includes detailed analysis and substantial changes of the entire product, focusing on important changes to its structural and technological parameters that will make it feasible. At the same time, in the both projects, using author 's specialized software, multi-variance design and parallel analysis of the results good solution very near to their optimal values was found. The additional goal of the authors is to share how this approach and tools, combined with successful machine-building design systems, can contribute to raising the level of all power gears drives

The housing Phillips curve and momentum in the Norwegian housing market

This paper provides descriptive evidence for a housing Phillips curve in Norway, suggesting a negative relationship between the ratio of inventory-to-sales and subsequent house price growth in the market for existing homes. We show that the negative relationship between inventory-to-sales and house price growth in Norway only holds at short horizons, consistent with short-term momentum in the Norwegian housing market. This is in contrast to the U.S. housing market, where the Phillips curve relationship and momentum effects persist over longer horizons. We also examine heterogeneity in the housing Phillips curve and momentum across Norwegian local housing markets and find that the housing Phillips curve is stronger in larger cities. Overall, our findings imply that the Norwegian housing market is less frictional than the U.S. housing market, with homes selling faster on average and house prices responding faster to shocks

Duration Dependence and Labor Market Experience

We study whether unemployment duration dependence—the negative effect of a current unemployment spell on an individual's employment probability—varies with labor market experience. Using data from the National Longitudinal Survey of Youth and the Current Population Survey, we show that although there is negative duration dependence for experienced workers, it is mostly absent for new entrants to the labor force. This difference suggests that structural forces in addition to ex ante heterogeneity in job-finding probabilities and dynamic selection may drive unemployment duration dependence. Our findings are robust to the econometric model used and to a number of demographic controls and time trends, as well as individual fixed effects. We also discuss whether a number of theories of duration dependence can explain our empirical findings

Information Quality and Regime Change: Evidence from the Lab

We experimentally test the effects of information quality in a global game of regime change. The game features a payoff structure such that more dispersed private information induces agents to attack more often and reduces regime stability in the Bayesian Nash Equilibrium. We show that subjects in the lab do not play as predicted by equilibrium theory. Instead, more dispersed information makes subjects more cautious, increasing regime stability. We show that this finding is consistent with a modified global game model in which agents engage in level- thinking. In the level- model, information quality affects agents’ actions through a novel channel, that enables a strategic attenuation effect. As information quality worsens, strategic complementarities between different level- types weaken, generating a force that is capable of reversing the comparative statics from the equilibrium model