Date: 2020
Type: Thesis
Essays in macroeconomics : fiscal policy, hiring frictions, uncertainty, and risk sharing
Florence : European University Institute, 2020, EUI, ECO, PhD Thesis
ROGANTINI PICCO, Anna, Essays in macroeconomics : fiscal policy, hiring frictions, uncertainty, and risk sharing, Florence : European University Institute, 2020, EUI, ECO, PhD Thesis - https://hdl.handle.net/1814/69000
Retrieved from Cadmus, EUI Research Repository
The three chapters of this thesis are inspired by some aspects of the complex world where we live in. The first chapter uncovers the role of firms' hiring decisions as a key source of state dependence in the fiscal spending multiplier. When the hiring rate is high, a larger share of workers has to be relocated from production to recruitment and training of the new hires. This diversion of resources lowers firms' productivity and reduces the effect of government spending stimulus on output. I establish this result using local projections and I illustrate this mechanism building a non-linear dynamic general equilibrium model. The second chapter, joint with Joonseok Oh, shows how uninsurable unemployment risk is crucial to qualitatively and quantitatively match macro responses to uncertainty shocks. Empirically, uncertainty shocks i) generate deflationary pressure; ii) have considerably negative consequences on economic activity; iii) produce a drop in aggregate consumption, which is mainly driven by the response of the households in the bottom 60% of the income distribution. Standard representative-agent New Keynesian models have difficulty to deliver these effects. A heterogeneous-agent framework with search and matching frictions and Calvo pricing allows us to jointly attain these results. Uncertainty shocks induce households' precautionary saving and firms' precautionary pricing behaviors, triggering a fall in aggregate demand and supply. These precautionary behaviors increase the unemployment risk of the imperfectly insured households, who strengthen precautionary saving. When the feedback loop between unemployment risk and precautionary saving is strong enough, a rise in uncertainty leads to i) a drop in action; ii) amplified negative responses of macro variables; iii) heterogeneous consumption responses of households, which are consistent with the empirical evidence. The third chapter, joint with Alessandro Ferrari, empirically evaluates whether adopting a common currency has changed the ability of euro area member states to share risk. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali, Sorensen and Yosha (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro has reduced consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.
Table of Contents:
-- 1. Fiscal multipliers : a tale from the labor market -- 2. Macro uncertainty and unemployment risk -- 3. Risk sharing and the adoption of the euro
Additional information:
Defence date: 24 November 2020; Examining Board: Prof. Evi Pappa (University Carlos III of Madrid); Prof. Leonardo Melosi (European University Institute and Federal Reserve Bank of Chicago); Prof. John Fernald (INSEAD and Federal Reserve Bank of San Francisco); Prof. Antonella Trigari (Bocconi University)
Cadmus permanent link: https://hdl.handle.net/1814/69000
Full-text via DOI: 10.2870/20049
Series/Number: EUI; ECO; PhD Thesis
Publisher: European University Institute
LC Subject Heading: Macroeconomics; Fiscal policy; Risk -- Mathematical models
Preceding version: http://hdl.handle.net/1814/64526; https://hdl.handle.net/1814/69016; https://hdl.handle.net/1814/69017
Version: Chapter 2 ‘Macro uncertainty and unemployment risk' of the PhD thesis draws upon an earlier version published as EUI ECO WP 2019/02 and Chapter 3 ‘Risk sharing and the adoption of the Euro' of the PhD thesis draws upon an earlier version published as ESM Working Paper Series 17/2016 and as ADEMU Working Paper Series 2017/055.
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