This first chapter is co-authored with Nicolás Aragón and examines how participant and market confidence affect the outcomes in an experimental asset market where the fundamental value is known by all participants. Such a market should, in theory, clear at the expected value in each period. However, the literature has shown that bubbles often occur in these markets. We measure the confidence of each participant by asking them to forecast the one-period-ahead price as a discrete probability mass distribution. We find that confidence not only affects price-formation in markets, but is important in explaining the dynamics of bubbles. Moreover, as traders’ confidence grows, they become increasingly more optimistic, thus increasing the likelihood of price bubbles. The second chapter also deals with expectations and uncertainty, but from a different angle. It asks how increased uncertainty affects economic demand in a particular sector, using a discrete-choice demand framework. To investigate this issue I examine empirically to what extent varying uncertainty affects the consumer demand for flight traffic using us micro demand data. I find that the elasticity of uncertainty on demand is economically and statistically significant. The third chapter presents a more practical side to the issue examined in the first chapter. It describes how to elicit participants’ expectations in an economic experiment. The methodology is based on Harrison et al. (2017). The tool makes it easier for participants in economic experiments to forecast the movements of a key variable as discrete values using a discrete probability mass distribution that can be “drawn” on a virtual canvas using the mouse. The module I wrote is general enough that it can be included in other economic experiments.
The three chapters of this thesis provide a theoretical and quantitative analysis of three elements of the tax-transfer system which recently received increased attention in both the academic and the public policy debate in the United States and Europe. In the first chapter, I show theoretically that optimal taxes on business owners are not entirely characterized by the usual, well established, equity-eficiency trade-off but that additional \trickle down" effects reduce optimal tax rates. As taxes on business income reduce investment, the demand for labor declines, which results in lower wages. I show quantitatively, on the basis of a dynamic general equilibrium model calibrated to US data, that these effects substantially reduce the optimal progressivity of the income tax code. In the second chapter, joint with Fabian Kindermann and Dominik Sachs, we argue that the taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. On the basis of a life-cycle model calibrated to the German economy we show that for each Euro of bequest tax revenue that the government mechanically generates, it can expect another 7.6 Cent through higher labor income taxes of heirs. We show theoretically and quantitatively that a proper modeling of - empirically hard to identify - anticipation effects is crucial to obtain this result. Finally, in the third chapter, joint with Arpad Abraham, Joao Brogueira de Sousa and Ramon Marimon, we assess the beneffts of a potential European Unemployment Insurance System using a multi-country dynamic general equilibrium model with search frictions. In spite of substantial heterogeneity of labor market institutions across Europe, we find that a harmonized benefft system with a low replacement rate but an unlimited duration of eligibility is welfare improving in all countries as long as country specific contribution payments eliminate persistent transfers.
This thesis comprises essays in macroeconomics across two main themes. The first studies the role of confidence shocks as a source of business cycle fluctuations using an instrumental variable approach. Exogenous drops in consumer confidence are identified by using school and mass shootings in the U.S. as natural experiments. Such autonomous drops in confidence are, in turn, found to sizably and persistently depress consumption and economic activity, raise prices, and reduce nominal interest rates. These empirical findings are shown to be consistent with a model in which negative confidence shocks reduce expectations of future technology, prompting consumers to save for wealth and precautionary motives, firms to reduce employment and investment while raising prices, and monetary authorities to reduce short-term nominal interest rates. These findings provide empirical evidence of a causal role of confidence in producing macroeconomic fluctuations. The second theme studies household fertility decisions in relation to business cycles and underlying labor market institutions. Fertility in the U.S. is shown to be procyclical with respect to current economic conditions (negative unemployment shocks) and rise in response to consumer expectation and stock price news shocks - representing expected wealth effects anticipated by households. However, fertility is shown to be countercyclical with respect to highly transitory TFP shocks – such that couples choose to have children during recessions when the opportunity cost (forgone wages) is lower, i.e. the income effect outweighs the substitution effect. Moreover, labor market institutions not directly targeting fertility are found to affect average fertility rates through their impact on business cycles. Fertility rates are negatively associated with wage rigidities (which raise employment volatility) and positively associated with employment rigidities (which instead raise wage volatility).
In this thesis, I study from various angles how uncertainty affects macroeconomic activity. Chapter 1 investigates the effects of uncertainty shocks on economic activity in the euro area by means of a Dynamic Stochastic General Equilibrium (DSGE) model with heterogenous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in bank loan rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy. In chapter 2, I provide empirical evidence that uncertainty shocks have strong asymmetric effects on economic activity depending on the phase of the business cycle. In particular, the impulse responses estimated with the local projection method on a smooth-transition model show that in recessions uncertainty shocks strongly dampen economic activity. In an expansion, the effects are reversed, and uncertainty shocks have positive macroeconomic effects. One possible explanation is that during expansions uncertainty fosters investments and economic activity through the "growth options" channel, while in recessions it reduces investments via the "wait-and-see" channel. In chapter 3, I show that shocks to macroeconomic uncertainty negatively affect economic activity both in the short- and in the long-run. In a New Keynesian model with endogenous-growth through investment in R&D, volatility shocks have negative affects in the short-term because of precautionary savings, lower propensity to undertake risky investments and rising markups, and in the long-run because of the fall in R&D investment. The presence of long-run fluctuations in consumption makes agents more risk-averse, which strongly amplifies the affects of uncertainty shocks.
The pay-as-bid auction, also called the discriminatory price auction, is among the most common auction formats to price and allocate assets and commodities. Trillions of dollars each year are traded in pay-as-bid auctions. The format is the natural multiunit extension of the ﬁrst-price auction of a single item. Bidders specify a price for each unit they want to buy. The market clears at the price where supply intersects aggregate demand and winning bidders pay their bids for each unit won. In the ﬁrst chapter of my thesis, I explain strategic diﬀerences and similarities between the single-item and multi-unit case. In practice, it is rare that multi-unit auctions take place in isolation. The second chapter introduces a model of interconnected pay-as-bid auctions. The auctions run in parallel and oﬀer perfectly divisible substitute goods to the same set of symmetrically informed bidders with multi-unit demand. This connects the demand side of both auctions. The supply side is linked because the total amounts for sale may be correlated. I show that there exists a unique symmetric Bayesian Nash equilibrium when the marginal distributions of supply have weakly decreasing hazard rates. I then develop practical policy recommendations on how to exploit the interconnection across auctions to increase revenues. These theoretic insights are the basis for the ﬁnal chapter of my thesis. In collaboration with Jason Allen (Bank of Canada) and Jakub Kastl (Princeton University) I use data from auctions of Canadian debt to quantify the extent to which demands for securities with diﬀerent maturities are interdependent. Generalizing methods for estimating demand schedules from bidding data to allow for interdependencies, our results suggest that 3, 6 and 12-month bills are often complementary in the primary market for Treasury bills. We present a model that captures the interplay between the primary and secondary markets to provide a rationale for our ﬁndings.
This thesis consists of three independent chapters, related by a common theme: the role of education in the macroeconomy. The first chapter considers the role of higher education policies in intergenerational mobility. Student loans and grants increase the possibilities for low-income students to attend college and earn high incomes later in life. For that reason, they are commonly assumed to increase intergenerational mobility. Instead, the chapter shows that education policies have another effect, working in the opposite direction: they reduce the relative importance of other components of earnings such as luck, while those components are a greater source of mobility. Which of the two effects dominates is an empirical question. To that end, the chapter develops and parameterizes a model of the markets for higher education and labor. The results show a trade-off between welfare and intergenerational mobility. The second chapter connects two disparate strands of literature on earnings inequality. On the one hand, skill-biased technological change describes how general equilibrium effects between different types of workers shape the income distribution. On the other, the literature on taxation suggests that incentives to accumulate human capital drive the earnings distribution. The chapter combines both approaches, underpinned by an empirical analysis of occupational skill data. It finds that incentive changes in taxation like those that occurred in the second half of the 20th century can lead to polarization of the labor market. The third chapter really concerns education in economics, rather than education in the economy. It analyses the completion times of students in top European PhD programs. These are comparable to their counterparts in the United States, with a median that is approaching six years and a higher average. The publication of the present thesis helps counter the trend.
This thesis consists of three essays in applied microeconomics. In Chapter 1, I estimate the effect that wealth and power have on criminal justice outcomes by exploiting the random matching of drivers to pedestrians in vehicle-pedestrian crashes. If justice is impartial, we should observe the same share of rich offenders both for poor and rich victims, conditional on location and time. Rich victims act as a control group to estimate the proportion of missing rich offenders whose victims are less powerful. Using data from Russia, I find that its justice system is not impartial and the disparity in outcomes is even more obvious for graver crashes. Chapter 2 studies how race and gender affect the probability of receiving help in the United States. Refining the approach of Chapter 1, we estimate whether drivers who hit a pedestrian decide to stay or flee depending on the race or gender of their victim. We match crashes that happened under similar circumstances and in proximity to each other in the U.S. We find that drivers generally do not discriminate pedestrians by gender, but do by race. Drivers stay less often for blacks than for whites, especially in the white-majority neighborhoods. Chapter 3 studies how the power imbalance between victims and defendants affects negotiations in Victim-Defendant settlements in criminal justice. We develop a perfect-information game where the victim and the defendant must exert costly effort for the case to reach prosecution, but they can settle before the contest. Improving the defendant’s bargaining position reduces the settlement amount, yet even affordable settlements can fail to happen. Using the data on criminal traffic offenses in Russia, we structurally estimate the model and recover individual preferences and fighting abilities. We find that the relation between the defendant’s wealth and the expected settlement offer is inversely U-shaped.
The first chapter of this thesis (which represents joint work with Benedikt Kolb) quantifies the potentially different effects of monetary policy communication on macroeconomic variables, relative to monetary policy actions, using U.S. data. We employ a decomposition of high-frequency jumps in financial futures around meeting days of the FOMC, in the vein of Gürkaynak et al. (2005), but with an additional weighted averaging procedure to reduce noise and to allow the series to be entered into a simple hybrid VAR of the Romer and Romer (2004) type. We find that only the communication shocks deliver responses of Industrial Production consistent with theory. The second chapter of the thesis re-examines the argument of Asker et al. (2014), who suggest that recently developed measures of resource misallocation largely document the dynamic adjustment of firms in the presence of capital adjustment costs and idiosyncratic shocks to demand. The study extends the analysis of Asker et al. (2014) to the case of labour adjustment costs, and finds that such arguments are well able to deliver the levels of labour misallocation recorded using Italian firm-level data. The model struggles with the correlation between misallocation measures and firm-size. The model is then used to investigate a regulatory threshold, representing the first structural investigation of factor adjustment costs that explicitly incorporates features of the regulatory environment into estimation. The effects of regulatory reform for TFP are shown to be potentially quite large. The third chapter of the thesis evaluates whether the financial crisis of 2008 precipitated positive or negative changes in levels of misallocation, as would follow either from the “cleansing” or the “sullying” views of recessions respectively. The paper uses European data from 13 economies. Regression analysis is able to detect some evidence for cleansing redistributions of value-added and employment, for the manufacturing sample.
My thesis is centred on the question of how information asymmetries affect elections. In particular, I am interested in how electoral concerns shape policy choices and in the consequences of institutional arrangements aimed to providing voters with information on politicians. In the first chapter I model a primary election, i.e. an election to choose a candidate. I show that if party members do not know the quality of candidates, high quality candidates distinguish themselves by proposing more extreme policies. As a result, introducing primary elections increases the quality of candidates but it might lead to policy polarization. The second chapter, which is my job market paper, develops a model in which a politician takes a repeated action over an issue and is evaluated by a voter through an election. I show that politicians who flip-flop, i.e. change their decision on the issue, are penalized by voters, because flip-flopping signals incompetence. As a result, politicians have an incentive to protect their reputation by inefficiently sticking to their initial policy choice. This decreases the quality of both policy and electoral choices. The paper also discusses how changes in transparency and term limits can discipline the behaviour of politicians. My third and final chapter describes a media market in which a set of news outlets compete to break a news concerning a politician in office; after receiving a signal of whether the politician is corrupt, media outlets can either fact-check and learn the truth, or publish the news immediately. We show that increasing the number of outlets competing in the market results in less fact-checking and more fake corruption scandals being published. By making the re-election of honest incumbents more difficult, the increase in competition might therefore be detrimental to social welfare.
This thesis addresses two phenomena, which are commonly observed in the financial markets but so far have received relatively little attention in the literature. By putting these issues into a theoretical framework I provide a deeper understanding of their mechanisms as well as their possible impact on the market as a whole. The aim of the first part of the thesis is to provide a rationale why informed traders in the financial markets voluntarily share information with others. The success of online chatting platforms within the financial service industry shows that traders very much like to communicate with each other. Standard theory however suggests that by sharing information, traders reduce their informational advantage and thus decrease their profits. The aim of this work is to reconciliate theory with the facts by providing an explanation on why sharing information could be profitable for traders as well as to investigate the effects of information sharing on the market as a whole. The second part of the thesis analyses the role of credit insurance on debt renegotiation. During the renegotiation of private debt in Greece it has become apparent that the existence of credit insurance significantly changes investor behavior when it comes to their willingness to accept a deal. This article explores the impact of credit insurance on the bargaining process as well as how it changes lending conditions for the issuer of debt.
This thesis consists of three microeconomic essays that depart from the perfectly informed and self-interested agent to analyze important socioeconomic problems which do not find a fully satisfactory explanation under more standard characterizations of individual behavior. The first chapter explores the role of economic information on housing tenure choice during periods of generalized optimism, such as housing bubbles. A microeconomic theoretical model including biased beliefs about future house prices is developed, and its main predictions tested in the context of the last Spanish housing bubble. The main finding is that better-informed households were less likely than worseinformed ones to purchase their main dwelling in the years leading up to the burst, when houses were highly overvalued. The second chapter focuses on how the relationship between diversity and performance in hierarchical organizations is mediated by group size. It tests theoretical predictions for individual performance in contexts where knowledge spillovers are important for production, by analyzing the case of Pakistani tax collectors. A legal rule which dictates that 10% of positions must be reserved for members of the army renders this case particularly convenient for observing the effects of diversity. The third and last chapter proposes a new explanation for the relationship between within-country cultural diversity and support for regionalism —both in the form of demands for more autonomy and outright secessionism. This suggests that otherregarding preferences of individuals might play an important role. We test this relationship using data on electoral support for regionalist parties across tenWestern European countries, finding that a region being relatively richer than the country to which it belongs is associated with higher electoral support for regionalist parties only to the extent that it is culturally differentiated.
In the first chapter of my thesis I study the effect of firing costs and labor reallocation. Exogenous variation of expected firing costs is offered by the random allocation of judges to trials involving firms in a large Italian court. Judges may be slow or fast and therefore firms experience randomly assigned shorter or longer trial lengths in an institutional context in which longer trials imply higher employment protection. I find that a 1% increase in expected firing costs induced by the past experience of a longer trial reduces the hazard of hiring or firing by 0.4% after the end of the trial. In the second chapter of my thesis I use administrative data from one large Italian court I quantify the extent to which lawyers can be held accountable for the slowness of Italian courts. Borrowing the methodology used in the analysis of employers-employees linked data, I estimate the contribution of unobservable time-invariant plaintiff and defendant lawyers' characteristics in explaining the variability of trials' length. I find that 27% of the variance in trials length is explained by unobservable time-invariant lawyers' characteristics. In the third chapter I study how tournaments may motivate workers to provide effort, yet differences in relative abilities may undermine the incentives of workers to exert effort. I use a novel data set from professional football competitions and find that differences in relative abilities are associated with lower effort exerted by players. In this empirical setting, effort and relative abilities are measured as, respectively, the distance covered on the pitch by football players and relative winning probabilities, the latter derived from betting odds of professional bookmakers. I find that larger differences in betting odds of opposing teams lead to less distance covered on the pitch.
This thesis consists of two chapters regarding the transmission of information in the
sovereign debt market. The first one looks into the signaling role of the choice of debt by the sovereign and the second one focuses on a class of intermediaries in the market of sovereign debt, the credit rating agencies, and examine the information consequences of their solicited and unsolicited ratings. In the first chapter I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I perform an empirical investigation based on a panel of 58 OECD and emerging market economies since 1980 and  find evidence of this signaling channel.
The second chapter aims at contributing to the debate on whether unsolicited ratings
are strategically motivated. I present evidence from the sovereign debt market that strategic motivation is not necessarily behind the patterns that we see in the data and propose a model of credit ratings and ancillary services that abstracts from strategic considerations. In my model, borrowers with different unobservable characteristics select themselves into different solicitation groups. In equilibrium, the model can generate either a negative or a positive selection on unsolicited ratings, depending on the share of unsolicited ratings in a given market. The economic mechanism analyzed in this chapter implies a "natural" degree of market selection which is not associated to strategic motivation.
This aims at better understanding the drivers behind the volume-outcome rela- tionship found in many studies in the medical and health-economics literature. In the first chapter I investigate the relationship between workload and choice of treatment. Using detailed microdata on childbirth, I exploit a quasi-random assignment of patients attempting to have a natural delivery to different ratios of patients-to-midwives and compare their likelihood of changing delivery method. I find that women who face a ratio higher than 1.33 are 34% more likely to give birth by cesarean section (C-sections). This effect is larger for patients who were already admitted with a higher risk of C-section, since provision of proper and timely care matters more for these patients. Because C-sections are faster than vaginal deliveries, the medical team may find it appealing to do more C-sections when time constrained. Using civil status as a proxy for bargaining power -assuming single women are on average more likely to be alone-, I find that only single patients are subjected to unnecessary surgery. The second chapter documents the existence of `learning-by-doing' effects in physicians' performance. More specifically, I test whether cesarean-section surgeons who have performed more procedures in the recent-past observe an improvement in performance. By using data from the Italian health care system, where patients are not allowed to choose a physician, I eliminate concerns regarding possible bias from selective referral -a problem in previous studies. Using four years of birth certificates data from one large hospital I find that, for emergent cases, performing one additional procedure reduces the likelihood of neonatal intensive care unit admission by nearly 1.2 percentage points (5.5%) and of being born with a low Apgar Score by about 1.1 percentage points (10%), all else equal.
This thesis focuses on recent monetary and macroprudential policies addressing the Financial Crisis. Chapter 1 stresses the role of central-bank communication. In particular, shocks derived from movements in federal funds futures prices during monetary policy announcement days have become popular for analysing U.S. monetary policy. While the literature often considers only surprise changes in the policy rate (“action shocks”), we distinguish between action and “communication shocks” (surprise announcements about future rates), using a novel decomposition of futures price movements. Our results indicate that communication shocks are the main driver of U.S. monetary policy shocks and that they explain a substantial share of variation in production. Chapter 2 turns to a macroprudential topic: How will a tightening in aggregate bank capital requirements affect the real economy? In this paper, we investigate this using a narrative index of regulatory US bank capital requirement changes for the period 1980M1 to 2016M8. Our results robustly suggest that a tightening in capital requirements leads to a temporary drop in lending and economic activity. The aggregate capital ratio and the level of bank capital increase permanently. Our results suggest that permanently higher capital requirements have no lasting negative effect on the real economy. Finally, Chapter 3 looks at asset purchases by the ECB. Their declared goal is to revive inflation, but purchases of which asset will be best suited for this? I address this question in a DSGE model with a role for three different asset classes: Government bonds, securitised financial assets and corporate sector bonds, which affect the economy via different channels. I investigate the impact of asset purchases in an environment of low inflation and a policy rate at the zero lower bound. Purchases of government bonds appear most effective in countering disinflationary episodes, while those of securitised assets have less impact.
The first chapter of this thesis, joint with Angela Abbate analyses the importance of the risk-taking channel for monetary policy. To answer this question, we develop and estimate a quantitative monetary DSGE model where banks choose excessively risky investments, due to an agency problem which distorts banks’ incentives. As the real interest rate declines, these distortions become more important and excessive risk taking increases, lowering the efficiency of investment. We show that this novel transmission channel generates a new and quantitatively significant monetary policy trade-off between inflation and real interest rate stabilization: it is optimal for the central bank to tolerate greater inflation volatility in exchange for lower risk taking. The second chapter develops a quantitative model of sovereign default with endogenous default costs to propose a novel answer to the question why governments repay their debt. In the model domestic banks are exposed to sovereign debt. Hence sovereign default causes large losses for the banks, which translate into a financial crisis. The government trades these costs off against the advantage of not repaying international investors. Besides replicating business cycle moments, the model is able to generate not only output costs of a realistic magnitude, but also endogenously predicts that default is followed by a period during which no new foreign lending takes place. The duration of this period matches empirical estimates. The third chapter outlines a method to reduce the computationally necessary state space for solving dynamic models with global methods. The idea is to replace several state variables by a summary state variable. This is made possible by anticipating future choices that depend on one of the replaced variables. I explain how this method can be applied to a simple portfolio choice problem.
This dissertation is composed of three self-contained chapters on the same topic: the impact of financial markets on inequality. The first paper investigates the connection between the increase of equity wealth, the rise stock-market returns, the slowdown of corporate investment and the decline of the labor share in the U.S. economy. I use a version of the standard heterogeneous-agent model to explain the connection of these phenomena and I identify three driving forces. In particular, I show that the fall of the average marginal tax on capital income, the reduction of stock-market costs and a higher inclination towards corporate short-termism explain the decrease of investment and the rise of equity prices. This way, the model predicts an endogenous upsurge of equity Tobin’s Q and, importantly, the rise of equity returns. The decline of the labor share occurs in response to investment sluggishness when capital and labor are complements, which requires an elasticity of substitution consistent with the values found in the literature. Given the predictions of the model, the paper solves what Joseph Stiglitz has recently called the Piketty puzzle: why has the wealth-output ratio and capital returns increased, while wages have not. The second paper, which is joint work with Pedro Trivin, extends the previous analysis to a panel of countries. We use a reduced-form framework with wealth in the utility function to obtain an estimable equation and, by using recent panel time-series techniques, we find that the increase in Tobin’s Q explain almost 60 per cent of the total decline in the labor share. The third paper makes a theoretical contribution to recent debate on secular stagnation. I use a growth model with imperfect competition to show that the rise of monopoly rents is consistent with several investment and inequality dynamics that have characterized the post-1980 stagnant era.
In this thesis I develop two models that bring together macroeconomics and political institutions; these models allow me to draw conclusions about the impact of institutions on economic outcomes, and about the effect of economics on political results. In the first essay, I provide a formal theory that explains the effect of government coalitions on the probability of sovereign default, and the seemingly excessive prevalence of surplus coalitions across the democratic world. In the second essay, I construct a model of an endowment economy in which a leader distributes income, and I show how investments in de facto power enable the leader to significantly increase his tenure in office, while collecting a large share of rents for his private benefit. Throughout the thesis it is assumed that leaders are selfish, and institutions (incentives) are the main determinant of their behavior in power.
This thesis is composed of three essays that propose macroeconomic theories to answer empirical questions and guide policy design. The focus is on expectations formation, learning and optimal taxation. In the first chapter I address the empirical finding that sovereign default history is a predictor of risk spreads even after controlling for pricing fundamentals. I show that this fact can be reconciled with a model of creditors’ learning about the default probability of a sovereign. Furthermore, I show that if creditors learn about a group of countries, then clusters of default emerge as a side effect of the beliefs formation process. The second chapter documents that investment recovers sluggishly after recessions and that consumption tends to lead the recoveries. I propose a model to show that during recessions investors might be excessively pessimistic about consumer demand and delay the implementation of projects. Taking this setting to the design of countercyclical policy, I argue that corporate income taxation can be a desirable instrument to use, as it is linked to the expected gains of firms, while interest rate policy or investment subsidies affect the cost of investment. In the third chapter, coauthored with Pawel Doligalski, we study how to design the tax system in an economy featuring an informal labor market, by extending the Mirrlees theory on optimal income taxation. We estimate the key elements of this model on Colombian data and compute the optimal tax schedule.
This thesis sheds light on three questions in international macroeconomics. The first chapter investigates why business cycle correlations are state-dependent and higher in recessions than in expansions. I suggest a mechanism to explain why this is the case. Therefore, I build an international real business cycle model with occasionally binding constraints on capacity utilization which can account for state-dependent cross-country correlations in GDP growth rates. Empirically, I successfully test for the presence of capacity constraints using data from the G7 advanced economies in a Bayesian threshold autoregressive (T-VAR) model. This finding supports capacity constraints as a prominent transmission channel of cross-country GDP asymmetries in recession compared to expansions. The second chapter is joint work with Mathias Hoffmann and Sven Blank of the Deutsche Bundesbank. It analyzes how foreign direct investment (FDI) influences optimal country portfolio diversification. In a DSGE model that features the endogenous choice of firms to become internationally active through either exports or foreign direct investment (FDI), we find that the optimal equity holdings of agents are more biased towards domestic firms than in a model without FDI. The third chapter explores under which circumstances member countries of a monetary union will not find it optimal to bail each other out. To investigate these circumstances, I build a model of cross-country holdings of sovereign debt with the possibility of default, as well as the possibility to negotiate a bailout for a struggling country. I show that if there is a representative household in each individual member country, a bailout solution always exists. In a second version of the model that involves heterogeneity in household wealth within the bailout providing country, the utilitarian government of this country optimally refuses a bailout in some states of the world.
In the first chapter I calculate unemployment multipliers of fiscal policies. As an innovation, I include family firms in a New Keynesian model with search and matching frictions; they behave differently in the labor market and are differently managed. Based on European data I find that both at peak and cumulatively, unemployment reacts least when consolidation is done by increasing the value-added tax. However, this policy results in the steepest decline in consumption. Also, ignoring sectoral heterogeneity might lead to incorrect conclusions. Next, with Magnus Saxegaard we investigate the macroeconomic impacts of deregulating the labor and product markets. The novelty of the model, which was jointly developed with Rahul Anand and Purva Khera, is the inclusion of an underground sector in an open- economy model. It is a major determinant of the sign and the magnitude of reactions. We show that in South Africa both reforms increase long-run output, although labor market reforms are more successful in decreasing unemployment. Nevertheless, there are short-term costs; which can be mitigated reform packages. Finally, we find that it is usually better to start with a labor market reform. The last chapter focuses on southern Europe where high levels of government debt are coupled with rapid population aging. With Daniel Baksa we examine the macroeconomic effects of public old-age pension reforms and other policies under conditions of aging. As a novelty, we incorporate a shadow economy into an overlapping generations model. We find that a retirement age increase implies the lowest reduction in long-run GDP, although there are doubts about its feasibility. Impacts, in general, depend on the type of pension plan. Furthermore, when moving away from the PAYG towards a fully funded regime the pension-wage replacement rate temporarily sharply drops. The presence of informality and unemployment are important, in particular for responses of labor income tax hikes.
This thesis consists of two chapters exploring how even benevolent governments may struggle to convince their citizens that they will stick to the policies that ensure the best outcomes in equilibrium. If people believe that the government will optimally choose a different policy in the event of a crisis, their reaction to that belief may in fact bring about just such a crisis. This thesis investigates the circumstances in which these kinds of commitment problems can be overcome. The first chapter is on bank resolution, where the choice between resolving insolvent banks and bailing them out creates a time inconsistency problem. To deter banks from taking excessive risks, governments want to convince them that they will choose resolution. However, when facing the costs of liquidating banks, governments may be tempted to bail them out instead. By strengthening their bank resolution regimes, governments reduce these costs, thus credibly committing themselves to choosing resolution over bailouts. Governments with greater resources face a more severe commitment problem. When banks interact strategically, improving the resolution regime can eliminate equilibria in which they coordinate on risky investment strategies. In the second chapter, Antoine Camous and I present a theory linking the cyclicality of fiscal policy to inherited public debt. When debt is low, fiscal policy is countercyclical, in the sense that the government responds to reductions in output by cutting the tax rate. Above a threshold level of debt, however, optimal fiscal policy becomes procyclical. This creates the possibility of self-fulfilling crises, in which output is low because workers expect high taxes, and the government sets high taxes because output is low. Our model suggests why highly indebted governments might implement procyclical fiscal policy during recessions, even without facing high sovereign risk premia.
This thesis investigates three questions on fiscal policy that have gained importance in the recent turbulent times of general economic decline, labelled as the Great Recession. The first chapter examines how government spending multipliers can vary depending on the location of the debt holder. Empirically, we find that fiscal multipliers are larger when government purchases are financed by issuing debt to non-resident foreign investors, than to resident home investors. Using a theoretical model we then show how the location of the government debt holder produces these di?erential responses through the extent that investment is crowded out in each case. Increasing international capital mobility of the resident private sector can attenuate the di?erence between the two types of financing. The second chapter contributes to the current debate on fiscal sustainability and fiscal coordination in currency unions. It does so using a large-scale New-Keynesian DSGE model calibrated to the EA South and EA North, and fed with a particular fiscal policy scenario identified using the guidelines of the Stability and Growth Pact. The results suggest that when monetary policy is constrained by the zero-lower bound an expansion in the EA North o?sets a consolidation in the EA South leading to a union-wide increase in output. The third chapter studies the effects of fiscal policy in a setting where crisis shocks propagate through the real exchange rate to generate distortions in labour and financial markets. The joint presence of labour market and financial frictions, modelled as downward nominal rigid wages and a collateral constraint on private borrowing, endogenously generate unemployment and persistently high debt levels. Fiscal policies aiming to stimulate or consolidate the economy affect the movement of the real exchange rate in such a way so as to generate it toothless in the face of a 'debt-unemployment' trade-off.
Power is a fascinating phenomenon. While this is something different than money, somehow I always had the feeling that economic sciences could provide useful tools to facilitate its understanding. In what follows, I tried to provide some - necessarily modest - contributions to its analysis, focusing mainly on how the delegation of decision-making often required by the complexity of our societies can make the true distribution of power differ from the apparent one. In the first chapter I try to understand why public institutions or government agencies often end up being given large room of maneuver regarding the definition of the missions that they will carry out on behalf of their constituencies / something we can realize by noticing how many institutions are typically doing things which have nothing to do anymore with the reasons for which they were initially set up. The second chapter, the result of a collaboration with José-Maria Alonso-Meijide, is focused on a similar kind of delegation problem, but restricted to cases where the delegation has to comply with some voting scheme, like in a democratic assemble. The third chapter , also the result of a collaboration, this time with Agnès Benassy-Quéré, investigates what kind of delegation could best serve the power of the European Union within the International Monetary Fund. The issue there is not anymore theoretical, as it has been under intense discussions within and outside the EU over many years.
My thesis covers different aspects of applied game theory. The first paper looks at a two-sided asymmetric information game where agents make a collaborative decision not knowing each others' types. In the model, an intermediary has full knowledge about the types of agents and can make a decision that brings information to some types. However, once he puts the information on the table the agents are not obliged to pay him, which undermines his incentive to participate in the first place. I find that, nevertheless, the intermediary is still welfare-improving. In my second chapter I search for the optimal prize schemes in contests with sabotage. In the presence of sabotage, a standard prize scheme where all of the prize is given to the winner is no longer optimal as it creates very high incentives for sabotage. I show that in that case, an optimal prize structure may also assume a positive reward for contestants that are behind. With a higher number of contestants sabotage becomes a public good and therefore it is a lesser concern for the designer. In that case, when sabotage is expensive, the designer can achieve the first best by giving the whole sum to the winner. When I extend the problem to the continuous case the solution crucially depends on the cost of sabotage. When sabotage is expensive, the principal wants to give all of the prize to the winner, while when it is cheap he does not want to make a contest at all, and distributes all prizes equally. In the third paper we analyze to what extent knowing game theory alters a persons' behavior. Our experiment showed a huge difference in results before and after the course. However results suggest that players behave less cooperatively not because of the knowledge of game theory per se, but due to changed expectations. We have also found that a course on game theory increases the level of reasoning.
This thesis studies how fiscal and environmental policies affect firms' behavior and economic performance. In chapter 1, co-authored with Stefan Lamp, we focus on the effect of tax adjustment on firms' investment decisions. Using a detailed narrative of tax changes in Germany covering 40 years of fiscal adjustments, we define and exploit the exogenous variation of tax bills to quantify the effect of tax changes on future investment plans of firms as well as on realized investment. In chapter 2, co-authored with Hélia Costa, we study how uncertainty over environmental policy affects firms' investment in low-carbon technologies. We model policy uncertainty in the context of an emission trading scheme and we develop a three period sequential model. The set-up of the model combines the industry and electricity sectors and encompasses both irreversible and reversible investment possibilities for firms. Finally, in chapter 3, I investigate whether international and domestic firms' productivity growth may be heterogeneously affected by environmental policy. Using a novel measure of environmental policy stringency and a panel of 11 OECD countries and 22 manufacturing sectors over the period 2000-2009, I estimate the difference in multi-factor productivity growth between multinational and domestic firms associated with a tightening of domestic environmental policy.
This thesis utilizes factor models to test the predictions of macroeconomic theory and introduces a new model for estimating structural relations in the economy. Factor models have proven useful in overcoming limited information bias. Limited information bias occurs because the information set of the actual decision makers in the economy is larger than the information set captured by conventional empirical models (i.e. small VARs). With the help of factors we can model a large dataset by using a small model of factors that still capture the majority of aggregate dynamics in the economy. In the first chapter, joint work with Massimiliano Marcellino, we introduce a new empirical model: mixed frequency structural factor augmented VAR model. We show that in a mixed data frequency setting the model reduces aggregation bias and provides more precise estimates of factors and impulse responses, than competing models. We support this claim by means of a detailed Monte Carlo examination that also tests the new estimation procedure that we design. Finally we provide three empirical applications (monetary policy, oil and government expenditure shock) to show the usefulness of the model. In the second chapter I utilize a dynamic factor model to test the predictions of the rational inattention theory as put forward by Mackoviak et al. (2009). I first estimate a time varying parameter dynamic factor model on US post-war data on macroeconomic variables and sector prices. I identify impulse responses of three macroeconomic shocks and sector specific shocks to prices. I then regress price impulse responses, void of the influences of changing variances, on the variances of the shocks, to test the predictions of the rational inattention model over time.
Liquidity risk is inherent to the very nature of the banking activity which is to transform short term liabilities into long term assets. That is why liquidity crises are in one way or another implied in most financial crisis episodes. This thesis contributes to the understanding of how liquidity risk and liquidity crises in the banking and financial sector affect the allocation of resources and the functioning of the economy. It also discusses what could be the best institutional arrangements to share liquidity risk across agents and the best economic policies to avoid liquidity crises. It consists of three chapters focusing on diverse aspects of this topic. The first chapter, co-authored with Katerina-Chara Papioti, provides a new way to measure liquidity risk in the financial sector using the bidding behavior of banks in the bond auctions conducted by central banks. The second chapter examines risk-sharing between agents prone to liquidity shocks obtained through generational and intergenerational coalitions and asset trading in overlapping generation economies. Various institutional arrangements including financial intermediaries, stock markets and government interventions are studied in order to compare their risk sharing performance and optimality. The third chapter examines the international dimension of the liquidity issue and studies theoretically what combination of exchange rate regime and central bank policy is less vulnerable to a combined currency and banking crisis focusing on the sudden stop of capital flows as an underlying source of instability.
Abstract	The first chapter analyzes the effects of commercial television in Norway. Matching data on cable television networks with individual-level administrative register data, we find that the expansion of commercial television reduced ability test scores as well as high school graduation rates. We find stronger effects on sons of low-income parents and particularly large effect for children in elementary school. Aggregate data show a substantial drop in time spent reading by young people in the same period, suggesting that television watching may have crowded out more cognitively stimulating activities such as reading. This chapter is joint work with Simen Markussen and Knut Røed. The second chapter investigates how sickness absence behaviour in Norwegian municipalities was affected by the terrorist attack in Norway on July 22, 2011. Using register data covering the complete Norwegian population, I find that sickness absence rates declined substantially in municipalities affected more intensely by the attack. In municipalities from which a resident was killed in the attack, sickness absence rates declined by 4% compared to municipalities without victims. The effect is precisely estimated, stable across several challenging specifications, and persists for as long as there is available data. The effect for people in their 20's is more than twice that for the population at large – for this group, local exposure to the attack decreased absence rates by around 10%. The third chapter exploits a natural experiment in the Norwegian political system. I find that obtaining the right to vote at a lower age is associated with substantially higher turnout among first-time voters, and that this is driven by parental influence. Counter to conventional wisdom about the habitual nature of voting, this difference in political participation does not persist for subsequent elections.
The aim of this thesis is to contribute to our understanding of the consequences of economic development on the occupational choice of agents and its effects on macroeconomic variables, such as structural change and income inequality. The interplay between different types of agents is at the center of my research, both when it comes to matching between agents and sorting from agents to sectors. The first chapter focuses on the role of financial development for structural change. When credit constrained, more talented agents sort into more labor-intensive sectors than less talented agents. When borrowing becomes more available, talented agents sort into capital-intensive sectors to optimally leverage their talent. Consequently, the capital rental rates rise and less talented agents sort into labor-intensive sectors. Thus, financial development reverses the sorting pattern. Furthermore, simulation results indicate that employment shares increase in relatively labor-intensive sectors. I show that the empirical data is consistent with these theoretical findings. In the second chapter, I analyze the consequences of cooperation on inequality. I develop a heterogeneous agents model of cooperation distinguishing between two types of cooperation, between-task and within-task cooperation. The former is the opportunity to assign different tasks to different agents. The latter is the reassignment of tasks from one agent to another in cases where the first agent fails. Cooperation increases inequality at the top and decreases inequality at the bottom. Within-task cooperation is more inequality-enhancing than between-task cooperation. I also show that cooperation can lead to a greater skill premium in economies with a more dispersed talent distribution.
This thesis explores issues related to public and private insurance of income shocks, and the importance of human capital accumulation. The first chapter argues that the intertemporal elasticity of substitution of labor supply is a state-dependent variable which strongly depends on the return to human capital accumulation. Estimating a life cycle model I find that the average i.e.s. is low (0.35), and comparable with micro estimates, even in the presence of human capital. However, the average i.e.s. hides important heterogeneity: for college graduates the i.e.s. more than doubles over the life cycle, whereas it increases by about 58 percent for workers without a college degree. The second chapter argues that heterogeneous returns to human capital accumulation affects the degree to which search effort of unemployed deviates from the socially optimal level, and the reason behind the deviation. I find that (i) the main social costs associated with unemployment insurance are not due to moral hazard problems, but are due to distortionary effects of labor income taxes needed to finance the insurance. (ii) The magnitude of the moral hazard problem and the tax distortion problem differs substantially by age and education. And, (iii) the degree of tax progressiveness and benefit regressiveness has important effects on the deviation of search effort. The third chapter studies the relation between co-movement of income shocks and precautionary asset holdings. If households perceive spousal labor supply as an insurance mechanism, it is evident that this mechanism should work better the lower the co-movement of income shocks. We find that (i) households in which both spouses have the same education level or work in the same industry have a higher correlation of income shocks compared to couples with different education/industry. And, (ii) households who face larger co-movements of income shocks hold larger precautionary buffers.
This thesis contributes to the literature emphasizing the role of incomplete financial markets for the design of macroeconomic policies. I use two main frameworks for my analysis: In a small open economy model with default risk and incomplete markets, I study two questions addressing how predictions for optimal fiscal policy over the business cycle change in the presence of borrowing constraints. I use a standard incomplete markets model with heterogeneous agents to assess how government policies can alleviate the welfare losses caused by financial frictions. In the first chapter I argue that government spending can optimally be procyclical when governments cannot borrow in recessions. I decompose total expenditure into public goods and social spending and show that the latter component is crucial in driving this result. Furthermore, I show that higher income inequality exacerbates the welfare losses from conducting countercyclical policies without financial market access. The second chapter of this thesis is joint work with C. Gottlieb. We analyze to which extent a simple redistributive policy in the form of transfers can alleviate the welfare losses caused by frictional insurance markets. We find that targeting transfers towards low income households improves welfare, but reduces output per hours worked. Redistribution is more effective, and welfare is higher than under lumpsum transfers at low tax rates. In the third chapter, I study the role of spending rules on optimal tax policy in a small open economy with a government that lacks commitment to repay its external debt. I find that neither pro- nor countercyclical policy rules qualitatively change the predictions for optimal tax policy.
Structural vector autoregressions are of great importance in applied macroeconometric work. The main di culty associated with structural analysis is to identify unique shocks of interest. In a conventional approach this is done via zero or sign restrictions. Heteroskedasticity is proposed for use in identi cation. Under certain assumptions when volatility of shocks changes over time, unique shocks can be obtained. Then formal testing of the restrictions and impulse response analysis can be performed. In this thesis I show how identi cation via heteroskedasticity can be used in di erent contexts. In the rst chapter I analyze the dynamics of trade balances in response to macroeconomic shocks. I show that identifying restrictions, which are known in the literature, are rejected for two out of seven countries. Partially identi ed models fail to provide enough information to fully identify shocks. The second chapter, coauthored with my supervisor, demonstrates how one can bene t from identi cation via heteroskedasticity when sign restrictions are used. The approach is illustrated with a model of the crude oil market. It is shown that shocks identi ed via previously known sign restrictions are in line with the properties of the data. Use of tighter restrictions uncovers that the approach can be discriminative. The third chapter reconsiders the con icting results in the debate on the e ects of technology shocks on hours worked. Using six ways of identifying technology shocks, I nd that not all of them are supported by the data. There is no clear-cut evidence in favor of positive reaction of hours to technology shocks. However, it is plausible for real wage and disentangled investment-speci c and neutral technology shocks, even though conventional identi cation of the latter shocks is rejected.
This thesis is a collection of three essays on voting as a means of collective decision- making. The first chapter builds a model of how voters should optimally behave in a legislative election with three parties under plurality rule. I show that, in contrast to single district elections, properties such as polarisation and misaligned voting can be mitigated in legislative elections. The second chapter studies a model of committee decision making where members have career concerns and a principal can choose the level of transparency (how much of the committees decision he can observe). We show that increased transparency leads to a breakdown in information aggregation, but that this may actually increase the principal’s payoff. The theoretical model is then tested in a laboratory experiment. The final chapter introduces a model of legislative bargaining where three parties in the legislature bargain over the formation of government by choosing a policy and a distribution of government perks. I show that when individual politicians are responsible for the policies they implement - that is, those outside of government are not held accountable by voters for the implemented governments policies, while each individual politician in the ruling coalition is - then a given seat distribution can result in almost any two party coalition.
This thesis investigates the social dimension of entrepreneurial activity, showing the importance of embeddedness with local communities and institutions in affecting corporate strategies. The first two chapters contribute to the literature on family firms. The focus on family businesses allows us to study the importance of non-pecuniary benefits and costs attached to control, which are tightly linked to the degree of personal accountability that shareholders have for the actions of the company. The two chapters both use a difference-in-difference identification strategy to study how employment policies, and access to bank lending, differed between family and non-family firms during the recent economic and financial crisis. In particular, the first chapter looks at the geographical distribution of workforce adjustments, finding evidence of a systematic preference in family firms for job preservation and job creation close to their headquarters. The second chapter shows how the presence of a family block-holder had a positive effect in mitigating the adverse effects of the credit crunch. The third chapter of the thesis instead studies the importance of shared norms and values arising at the level of local social networks in reducing the uncertainty involved in hiring new workers. Specifically, it shows that a shared community of origin between employers and employees positively affects both the likelihood of retaining a job after a takeover and the economic performance of the acquiring firm.
The topics covered in this paper cover a broad range of subjects, from a reputation system in a discrete and infinite time model over to a three period game on a network and concluding with the optimal default decision in continuous time framework. The first paper, entitled  Firms’ Strategic Competition and The Dynamics of Reputation: The Case of an Online Market”, a joint work with Clodomiro Ferreira, analyzes, both theoretically and quantitatively, how sellers strategic competition for high valuation buyers in a context resembling on-line markets shapes reputation building incentives, and how it determines the dynamics of prices and reputation itself. The second paper, joint work with Agnese Leonello, investigates interbank market freeze and contagion that arises through asset sales in a financial network in which mark-to-market is the accounting standard in place. The paper develops a simple three-period theoretical model in which banks can borrow liquidity on the interbank market or sell assets at fire sale prices to meet their liquidity needs. Interbank market freeze and contagion arise in equilibrium as consequence of uncertainty of the counterparty risk and miscoordination in the sell of assets. Finally, the third paper written together with Mariana Khapko analyzes the issue of debt overhang in a Leland(1994) type of model and shows how the presence of a credit rating agency can mitigate this problem to some extent. Our results point out to the fact that a firm with performance sensitive debt in place might find it worthwhile to invest earlier in better projects whenever the investment reduces the coupon payments. The effect of the credit rating agency’s policy in the underinvestment issue is nevertheless non-monotonic.
This thesis offers a contribution to the economic literature applying a networks perspective to economic issues. The focus of my thesis is the role of agents that are in particularly prominent positions within networks and how such agents affect the creation and workings of their surrounding networks. In Chapter 1 I study bargaining and exchange in a networked market with intermediation. Possibilities to trade are restricted through a network of existing relationships and traders bargain over the division of available gains from trade along feasible network routes. Using a stochastic model of bargaining, I characterise stationary equilibrium payoffs and study efficiency and the relationship between network structure and payoffs. In Chapter 2 I study the role of intermediaries in network formation. Intermediating agents can conduct  introductions  and create a connection between two agents that share them as a common neighbour. Such introductions leverage the existing structure and are formed at lower cost than non-mediated connections. I study the properties of networks formed from the perspective of myopic stability, farsighted stability and through a game of link formation. In Chapter 3, co-authored with Anja Prummer, we offer a perspective on opinion leadership in influence networks. We study the integration of immigrant communities through a model with distinct channels for social influence and skills acquisition, which act as complements in the integration process.
This thesis comprises theoretical work on financial markets and banking. The first essay features a model of liquidity provision. I analyze how the severity of adverse selection problems in one market is affected if alternative sources of finance, which are not subject to adverse selection problems, become more easily available. In particular, I find that the adverse selection problem can be either mitigated or amplified, giving rise to new implications for equilibrium welfare, efficiency and policy. Furthermore, I examine how and under what conditions a central bank can address a market failure during a financial crisis by using existing market institutions to re-allocate liquidity in the economy. The second essay develops a new contagion mechanism in coordination games. With our model we offer an explanation why a contagious spread of a crisis can occur even if agents learn that their country (or bank) is not exposed to crisis events elsewhere. What is more, we show that the likelihood of a spread of the crisis can be higher if agents learn that their country is not exposed to the crisis in the other country, than if agents stay uninformed about the actual exposure and believe that a cross-country exposure is possible. The third essay examines the effect of state aid on the collective competitive behavior in a repeated-game setting. We consider an application to the banking sector and find that a systematic bailout regime may increase the likelihood of (tacit) collusion in an industry characterized by idiosyncratic shocks. The reason being that state aid increases the expected profits from cooperation and simultaneously raises the probability that competitors will still be in business to carry out punishment against cheaters.
The thesis is a collection of essays in Applied Economics. The first essay employs unique Italian data to jointly consider different aspects of the relationship between agglomeration and labor market pooling. The paper looks across all industries from the perspectives of both workers and firms. The study finds evidence of a positive relationship between turnover and agglomeration, evidence of on-the-job learning and evidence consistent with agglomeration improving job matches. However, the estimated labor market pooling gains seem unlikely to account for a substantial share of the agglomeration benefits accruing to workers and firms. The second essay evaluates the effectiveness of a major Italian place-based policy through which the government endorses and finances an industrialization plan proposed by private firms. By using as counterfactuals the areas exposed to the same policy later in time, the study finds little evidence of a positive effect of the program on plants and employment growth rates, which is confined to a small area (municipality) and crowds out the economic growth of the surroundings. The third essay uses the consolidation of Italian municipalities brought about by the fascist dictatorship in the 1920s to gauge the role of the size of local jurisdictions for economic development. It finds that the consolidation was associated with relevant net welfare gains for the communities involved. In particular, the advantages related to the bigger economies of scale in larger jurisdictions overwhelmed the costs owing to the higher heterogeneity. The fourth essay investigates the impact of financial development on the quantiles of the conditional growth distribution. The study presents a growth model showing the quantile effects of finance on growth and provides empirical evidence consistent with the idea that countries in the upper tail of the conditional growth distribution react more than countries in the lower tail to the same financial stimulus.
This thesis studies the interplay between network structure and strategic decision making given the backdrop of economic and social networks. The first two chapters study how firms’ incentives to invest in costly R&D are affected by the pattern of R&D collaborations in a certain industry. These two chapters propose formal models that build upon and enrich the previous literature, which abstracted from two crucial dimensions of the problem. The first chapter introduces the possibility that inter-firm links aiming at R&D collaboration could facilitate market collusion. The second chapter incorporates network-based externalities resulting from informational flows and congestion that are associated with R&D collaborations. These chapters suggest that the benefits of possible inter-firm collaboration must be reevaluated from the point of their welfare consequences. The last chapter aims to improve our understanding of how collective action spreads in large and complex networks in which agents use online social networks as communication tools. To this end, we develop a dynamic game-theoretic model of the “on-set of revolutions” that focuses on the local spread of information in order to study how network structure, knowledge and information-sharing interact in facilitating coordination through online communication networks.
This thesis investigates the implications of imbalances within a monetary union. In the first chapter, I study how international financial frictions lead to international imbalances and affect optimal fiscal policy in a two-country, two-good DSGE model of a monetary union. I show that the presence of international imbalances affects the optimal conduct of cooperative fiscal policies when the traded goods are complements. Government expenditures optimally play a cross-country risk sharing role which is in conflict with the domestic stabilization role: optimal fiscal policy consists in setting government expenditures such as to reduce international imbalances at the expense of higher domestic inefficiencies. In the second chapter, I assess the implications of strategic fiscal policy interactions in a two-country DSGE model of a monetary union with nominal rigidities and international financial frictions. I show that the fiscal policy makers face an incentive to set fiscal policy such as to switch the terms of trade in their favour. This incentive results in a Nash equilibrium characterized by excessive inflation differentials as well as sub-optimally high current account imbalances within the monetary union. There are thus non-negligeable welfare losses associated with strategic fiscal policy making in a monetary union. The third chapter investigates empirically the degree of risk sharing in the European Economic and Monetary Union (EMU), using two different methods. The first measure relates to the capacity of consumption smoothing. This measure indicates that risk sharing is rather low and that the introduction of the common currency did not lead to higher intra-EMU risk sharing. The second measure is based on the welfare losses associated with deviations from full risk sharing. These welfare losses have fallen since the introduction of the common currency. However, this is mostly due to changes in macroeconomic risk - not to changes in risk sharing per se.
This thesis focuses on three distinct topics around healthcare and ageing. The first chapter assess the effectiveness of the current regime that regulates the entry and geographical distribution of pharmacies in Italy. Using a structural model from the recent literature on entry I find that the public interest view is not supported in the Italian case. Alternative policies that combine entry deregulation and markup reduction are found to achieve the same if not better geographical coverage by pharmacies, higher supply of pharmaceutical services, entry by new pharmacists and important government savings. The second chapter seeks to see whether financial literacy can be a factor that affects demand for private long-term care insurance. Using detailed data from the Health and Retirement Study I construct two comprehensive indices for financial literacy that capture various aspects and degrees of financial skills and knowledge. Using an instrumental variables approach I find that those with higher financial literacy are more likely to own private long-term care insurance. The third chapter investigates the effect of gradual retirement on a variety of health outcomes. Using a regression discontinuity approach I find that partial retirement has a preserving health effect in old age contrary to full time work that is found to deteriorate health. The effect of partial retirement on health is in fact larger in magnitude, suggesting that the health effects of working are non linear in old age.
This thesis contains three chapters relating to the field of household finance. In the first chapter household life cycle investment behaviour is investigated using a panel of Norwegian administrative data and tax records. Dealing with selection and identification issues, the data suggests a double adjustment as people age: a rebalancing of the portfolio away from stocks as households approach retirement, and a peak in stock market participation around the time when they reach retirement. A theoretical model predicting these life cycle patterns of investment behavior is then provided. This is achieved by extending existing models with a per period participation cost in risky asset markets and a small perceived probability of being cheated. In the second chapter the relation between household financial asset holdings and unemployment is investigated. Consistent with a simple theoretical model, the data shows increased savings and a shift towards safer assets in the years leading up to unemployment, and depletion of savings during unemployment. This suggests that at least some households can foresee and prepare for upcoming unemployment, which indicates that private savings can complement publicly provided unemployment insurance. The final chapter identifies the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. A severance payment worth 1.2 months' earnings lowers the fraction re-employed after one year by six percentage points. This effect is decreasing in wealth, which supports the view that the effect of severance pay should be interpreted as evidence of liquidity constraints. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, suggests they are likely to exist also in other countries.
Since corporate investment is a key driver for economic growth, it is very important to find out what are the drivers of the cost of financing for private firms. In particular, this thesis studies the determinants of spreads of bonds issued by advanced and emerging market borrowers and the determinants of foreign-currency corporate credit ratings. Chapter 1 demonstrates that the impact of debt market illiquidity on corporate bond spreads is exacerbated with a higher proportion of short-term debt. This effect is present in both investmentgrade and speculative-grade bonds and is smaller in banks as they may have the support of a lender of last resort during periods of market illiquidity. The paper’s major finding is consistent with the predictions of structural credit risk models that argue that a higher proportion of short-term debt increases the firm’s exposure to debt market illiquidity through a ‘rollover risk’ channel. Although credit rating agencies have gradually moved away from a policy of never rating a corporation above the sovereign (the ‘sovereign ceiling’), it appears that sovereign credit ratings remain a significant determinant of corporate credit ratings. Chapter 2 examines this link using credit rating data for advanced and emerging economies over the period of 1995 to 2009. The results are consistent with a sovereign ceiling ‘lite’ policy or ceiling that is not an absolute constraint, but a limitation that tends to decrease corporate ratings when these ratings are above the sovereign rating. Finally, chapter 3 investigates the impact of capital account restrictions on spreads of corporate bonds issued in international markets by developed and emerging market borrowers. The main finding is that capital account restrictions on inflows significantly increase corporate bond spreads. A second main finding is that capital account restrictions on inflows matter a great deal more during times of financial distress.
In the first chapter of this dissertation, we approach the estimation of dynamic stochastic general equilibrium models through a moments-based estimator, the empirical likelihood. We try to show that this inference process can be a valid alternative to maximum likelihood. The empirical likelihood estimator only requires knowledge about the moments of the data generating process of the model. In this context, we exploit the fact that these economies can be formulated as a set of moment conditions to infer on their parameters through this technique. For illustrational purposes, we consider the standard real business cycle model with a constant relative risk adverse utility function and indivisible labour, driven by a normal technology shock. In the second chapter, we explore further aspects of the estimation of dynamic stochastic general equilibrium models using the empirical likelihood family of estimators. In particular, we propose possible ways of tackling the main problems identified in the first chapter. These problems resume to: (i) the possible existence of dependence between the random variables; (ii) the definition of moment conditions in the dynamic stochastic general equilibrium models setup; (iii) the alternatives to the data generation process used in the first chapter. In the third chapter, we investigate the short run effects of macroeconomic and fiscal volatility on the decision of the policy maker on how much to consume and how much to invest. To that end, we analyse a panel of 10 EU countries during 1991-2007. Our results suggest that increases in the volatility of regularly collected and cyclical revenues such as the VAT and income taxes tend to tilt the expenditure composition in favour of public investment. In contrast, increases in the volatility of ad hoc -type of taxes such as capital taxes tend to favour public consumption spending, albeit only a little.
This thesis features three closely related chapters investigating the role of the investment wedge in affecting macroeconomic fluctuations. The first chapter shows that the Business Cycle Accounting (BCA) methodology is sensitive to the specification of households preferences in identifying the role of the investment wedge. A poor performance of the investment wedge and of the financial frictions it represents, such as the one BCA finds on 2007-2010 US data and other past events, is compatible with a simulated recession fully driven by financial factors and financial accelerator mechanisms when preferences are not correctly specified in the BCA tool. The second chapter investigates the conditions under which a shock to the risk premium paid by entrepreneurs on bank funds, i.e. a shock to the investment wedge, is able to generate a pro-cyclical response of aggregate consumption. The analysis shows that a minimum degree of nominal stickiness a-la-Calvo and non-separable households preferences of the GHH type, are sufficient conditions for solving the problem of counter cyclicality of consumption in the presence of financial shocks. The third chapter is an application of the BCA tool-kit to the Swedish boom-bust cycle of the late 1980s. The efficiency wedge plays an essential role in explaining the cycle while the investment wedge plays a minor role, adding to the persistence of the recession. Calibrating a BGG model to Sweden according to the findings of the BCA shows that financial deregulation reforms in Sweden did not affect the vulnerability of the economy to the recessionary shock.
This thesis studies the causes and consequences of sovereign defaults focusing on non traditional links between sovereign default and the domestic economy: the impact of sovereign defaults on the external financial conditions for the private sector  and the ex-ante implications of the redistributive effects of default and repayment on the political support that the government requires to implement either of these decisions. In the first chapter of my thesis I analyze the worsening of the external financial conditions for the private sector that follows sovereign defaults. To explore the issue I develop a signaling model in which sovereign defaults reveal negative information to foreign lenders regarding the institutional quality in the country. Foreign lenders care about institutional quality because it affects the expected repayment of loans. Therefore, if foreign lenders receive negative information on the institutional quality from the sovereign default they worsen the financial conditions they offer to local firms triggering a sharp reduction in credit and investment ( updating effect ). The model can rationalize the worsened financial conditions in international capital markets for the private sector observed after default episodes. In the second chapter, a joint work with Guido Sandleris and Alejandro Van der Ghote, we analyze how the presence of political constraints affects sovereign governmentsborrowing and default decisions. We do so in a standard DSGE model with endogenous default risk where we introduce two novel features: heterogeneous agents in the domestic private sector and a requirement that the government obtains some of their support to implement the fiscal program needed to repay the debt. In this framework, we demonstrate that sovereign default can also arise due to insufficient political support and we explore the implications of different income distribution, political systems and tax systems over the repayment decision.
Regulation in pharmaceutical markets is pervasive in most countries, especially in Europe. The nature of existing regulations is diverse, as they serve a number of purposes: guaranteeing safety, efficacy and security of drug usage; but also ensuring patients access to treatment, preserving affordability and fostering pharmaceutical innovation. A number of regulatory interventions are purposely designed to bring about more efficient pharmaceutical markets. These interventions are ultimately intended to increase welfare for patients today and patients tomorrow. Welfare today requires ensuring patients access to existing pharmacological treatment at an affordable cost. Welfare tomorrow requires ensuring a continued effort on research and development to produce pharmaceutical innovations that respond to currently unmet medical needs. The chapters of this thesis focus on a number of regulatory interventions that attract notable attention due to their effect on access, affordability and innovation. These include the regulation of pharmaceutical parallel trade, direct-to-consumer advertising of prescription drugs and off-patent pharmaceutical markets. By assessing the impact of public interventions on market outcomes and patients welfare, this thesis aims at contributing to the debate about optimal regulation of pharmaceutical markets.
No abstract available
Macroeconomic concepts such as inflation and real economic activity are not directly observed. Researchers often use factor models in order to measure these unobserved concepts. The underlying view is that a small number of factors exist which represent the concept and drive many related variables. Consequently  the U.S. economy is often modeled as an affine function of some factors. If indeed there is such a factor structure for the U.S. economy then it can be represented by a generalized dynamic factor model (GDFM). In the  first chapter I describe and summarize the literature on GDFMs. In the second chapter I investigate the interactions and mutually independent dynamics of changes in inflation and real growth by applying the GDFM to a block of real growth variables a block of inflation variables and to their joint panel. In this manner an empirical decomposition of the U.S. economy is obtained and this allows the reconcilitaion of forward and backward looking Phillips curves. In the third chapter I build and study a discrete time generalized dynamic affine term structure model. This is characterized by three main features that are conceptually important for a ne yield curve models. I allow: (a) for state vector dynamics beyond Markovian types  (b) that all yields may contain an idiosyncratic component to reflect measurement-errors in the data  and (c) that idiosyncratic components may be cross sectional as well as time-serial correlated. It is possible to directly compare this model with the version that is restricted by Du e-Kan's no-arbitrage conditions. Chapter four addresses whether or not changes in yields can be explained by changes to the latent dynamic factors which underlie the macroeconomic concepts of inflation and real growth. As such I contribute to the debate about whether or not monetary policy should react to real activity measures.
Does history matter for economic development? How do events taking place a long time ago continue to affect long term economic performance? To answer these questions I examine the long run impacts of the 19th century division of Poland into Prussian- and Russian- controlled sectors. Using micro-level data in a regression discontinuity framework, I show that the exposure to different socio-economic conditions during 100 years led to emergence of marked differences in development between regions in Poland. I find evidence that those differences persisted until the present through transmission by norms and beliefs. Nowadays, people living in the former Prussian sector have 12% higher referenda turnout, 11% higher general trust and 28% higher income. Various falsification tests indicate that there is something distinct about the historic frontier. Interestingly, the differences resisted subsequent switches in regimes from a market to centrally planned economy and back again to a market economy. The results are put in the context of the ongoing debate in the literature about the possible channels of persistence of distant historic events. Additionally, an extensive historical discussion is provided to shed some light on socio-economic differences in the 19th century between Prussian- and Russian-controlled sectors.
We live in a world surrounded by uncertainty and within this uncertainty human beings have to decide every action, every turn of life. When individuals take decisions the true value of parameters relevant for that decision are usually unknown and rarely important ex-ante. The final outcome, realized ex-post, indeed depends on the true parameters, but the decision does not. It usually depends just on the beliefs individuals have about these parameters. The aim of this dissertation is to contribute to a better understanding of the formation of individuals’ beliefs under realistic economic environments. 
Chapter 1 deals with the information acquisition decisions of individuals who face uncertainty about their own ability. At a theoretical level (Bénabou and Tirole, 2002), it has been shown that overconfident individuals (people with beliefs about themselves higher than reality) with time inconsistent preferences would more often prefer not to know their true ability before performing a certain task. A field experiment in the area of education is designed and implemented confirming the theoretical hypothesis. Chapter 2 explores the dynamics of beliefs with respect to the benefits of the introduction of the single currency (Euro) in Europe. The main result supports the existence of more optimistic beliefs during both the dates of the introduction of the Euro (the non-physical introduction in 1999 and the physical introduction in 2002) with respect to the period before and the period after the implementation. Finally, Chapter 3 explores the determinants of trust in order to better estimate the causal effect of trust on social efficiency. The reverse-causality problem is addressed by introducing an innovative set of instruments for trust from the field of neuroeconomics. The depurated effect is higher than in previous research, emphasizing the relevance of trust in increasing the efficiency of social organizations.
This thesis focuses on different aspects of Competition Policy and analyses questions related to market power, collusion and the European Commission's fining policy. The first chapter provides a theoretical setting to study a particular abuse of dominant position, known as margin (or price) squeeze. It explores the conditions under which margin squeeze arises as an equilibriumoutcome and discusses policy implications of introducing price squeeze testing. In the field of cartel detection, the leniency program has been instrumental in competition authorities' fight against cartels. This is the topic of the second paper, which examines the deterrence effect of the leniency program in a setup where all cartels are failing cartels. The third chapter provides an overview of the fining decisions of the European Commission in the field of antitrust. It analyses the incentives of firms to appeal Commission infringement decisions and examines whether the fining Guidelines have led to lower appeal rates, possibly through providing greater transparency in the way fines are set.
The goal of the present thesis is to analyze the diverging savings and investment behavior among countries. The purpose of this work is to suggest possible explanations for the so called .global imbalances.. In particular, the focus is on the negative asset positions of the US and the positive asset positions of emerging economies. The .rst two chapters study the effects of capital market liberalization among countries with structural differences and in particular different financial market depth. Global imbalances are generated by higher propensity to save as well as lower propensity to invest in financially underdeveloped countries, with respect to countries with better financial institutions. The analysis is able to reproduce medium term net capital flows towards financially advanced economies as a result of financial integration. Moreover, capital liberalization generates welfare losses for emerging economies and a reduction of their capital convergence towards the steady state. The third chapter focuses on one of the most debated aspects of international capital movements, namely sovereign reserve accumulation by emerging countries, as a form of precautionary saving to be employed to face liquidity crises. The analysis investigates the determinants of the opportunity cost of holding reserves, and finds that countries optimally decide to hold a positive amount of reserves. Countries’ lenders set the cost of debt by taking into account countries’ decisions and their economic and financial characteristics.
This thesis takes latent variables seriously. It consists of three chapters discussing the determinants of economic success for a British cohort. The evidence presented shows that abilities during childhood and adolescence are important predictors of adult educational, labor market and social outcomes. The problem is that abilities are unobserved. I hence rely on a novel item response theory method (Spady 2007) to measure these unobservables by using questions that are related to them. The assumption is that the latent variables cause the outcomes of interest but also the answers to questions that provide the basis for their measurement.
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The dissertation investigates various aspects of Bayesian inference in time series econometrics. It consists of one expository chapter and two research papers. The first chapter presents on an easy example of a production function for the USA the development of Bayesian models in the context of time series analysis. The model analysed is the Cobb-Douglas production function with covariance stationary AR(1) disturbances. The methods presented are used extensively in the next two chapters. The first research paper tackles the issue of identifiation in a SVAR model with an error term being a Markov mixture of normal distributions. Non-Gaussianity can be employed for the identification of shocks. So far only classical methods have been proposed for this class of models. Bayesian methods for inference are presented, in particular an efficient method for testing homogeneity of shock process. An empirical example presents the workings of the tools developed. The topic of the second paper is the forecasting with Bayesian VARs. Owing to the shrinkage, the original Minnesota prior was reported to provide significant improvements in forecasting accuracy. Its limitations however, gave rise to research trying to relax restrictive treatment of the residual covariance matrix, and to allow for the possibility of cointegration in the system. This paper first disentangles in a unified framework and a balanced environment of optimizing choice of hyperparameters the impact on the predictive power of BVARs of developments of priors along the above two dimensions; a well known historical dataset is analyzed for this purpose. As the second contribution, the paper presents a novel prior characterized by explicit modelling of cointegration that avoids certain unattractive restrictive properties of the previously used priors; the potential of the prior for elicitation from the well established Litterman beliefs is demonstrated as well as predictive accuracy improvements over the benchmarks.
Recent empirical firm level studies reveal the structural heterogeneity of firms in process and product innovation, as well as the central role of product quality in determining world trade patterns and intensities. This calls for a better understanding of the link between firm heterogeneity and the innovation and export decisions of firms which are at the base of productivity growth and, hence, economic growth and development. My dissertation contributes to this debate focusing on the supply side. I propose a novel way to model the production technology of firms by introducing two attributes of firm heterogeneity: cost efficiency and product quality. The goal of the first thesis chapter is to study the effects of process and product innovation on firm dynamics, productivity and endogenous long run growth. In the second chapter an open economy framework with trade between symmetric countries is analyzed. Here the focus is on quantifying the impact of trade as well as trade liberalization on firm innovation dynamics and productivity- and aggregate growth. The third chapter abstracts from endogenous growth and examines the role of the two attributes of firm heterogeneity in shaping the trade patterns and intensities within and across developed and developing countries.
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One of the most relevant events of the last decades has been the fast integration of international financial markets. As most restrictions to cross-border asset trade were removed, the volume of activity in international financial markets increased dramatically, and so did the cross-country flows of resources due to external borrowing and portfolio returns. Many of the macroeconomic consequences of these stronger financial linkages still have to be fully evaluated. This thesis investigates two facets of the strengthening of cross-border financial linkages. First, have developments in international financial markets raised global insurance against national income fluctuations? Second, what would be the macroeconomic effects of changes in the portfolio preferences of big international investors? Chapters 1 to 3 deal with the first issue, the insurance role of international financial markets, both from a theoretical and an empirical perspective. Chapter 4 is focused on the second topic, and is devoted to studying the macroeconomic implications of the growth of large international investors, Sovereign Wealth Funds.
The topic of this thesis is decision-making under risk. I focus my analysis on expected utility theory by von Neumann and Morgenstern. I am especially interested in modeling risk attitudes represented by Bernoulli utility functions that belong to the following classes: Constant Absolute Risk Aversion, Decreasing Absolute Risk Aversion (understood as strictly decreasing) and in particular a subset thereof - Constant Relative Risk Aversion.  I build a theory of buying and selling price for a lottery, the concepts defined by Raiffa, since such theory proves useful in analyzing a number of interesting issues pertaining to risk attitudes' characteristics within expected utility model. In particular, I analyze the following: - Chapter 2 - expected utility without consequentialism, buying/selling price gap, preference reversal, Rabin paradox - Chapter 3 - characterization results for CARA, DARA, CRRA, simple strategies and an extension of Pratt result on comparative risk aversion - Chapter 4 - riskiness measure and its intuition, extended riskiness measure and its existence, uniqueness and properties
What is Corporate Social Responsibility (CSR) and how can we explain the phenomenon from an economic perspective? Is there a business case for CSR and was Milton Friedman right when writing in the New York Times in 1970 that "the social responsibility of business is to increase its profits"? Chapter 1 of this thesis will address all these questions and create a coherent conceptual framework for further analysis in the subsequent chapters. In this function it will serve as a natural introduction to the economics of CSR. One of the main issues emerging from the literature on CSR is the need to identify and explore a new kind of classical dichotomy, i.e. the trade o¤ between market provision of public goods via CSR and its public counterpart via regulation. The two theoretical essays that follow will focus on novel and potentially unexpected interaction between ?rm strategy and classical regulation in light of CSR and imperfect information, thereby suggesting the need to revise and eventually adapt the traditional use of public policy or to think about completely new policy tools.
The difficulties and obstacles faced by the poorer nations of the global economy on the path to development are extremely diverse. It is the aim of this thesis to address some of the interesting questions related to the key obstacles. As such, this thesis is neither wholly empirical or theoretical, macro or micro and instead may be viewed as an eclectic mix of approaches and ideas that go some way toinvestigating the challenges faced by the world's least developed economies. The first chapter explores the varying effects of aspects of institutional quality on different categories of economic volatility, introducing a unique exogenous instrument for political aspects of the institutional bundle. The second chapter investigates the theory behind the largely failed policy of import substitution industrialisation and promotes a policy of diversification across production in the primary commodity sector within developing countries; specifically that this type of diversification can insulate developing economies from the effects of highly volatile primary commodity prices. The third chapter develops the general equilibrium model of appropriation and production of Grossman and Kim (1996) in order to investigate the effect that the pointiness of the contested resource can have on conflict intensity. The fourth and final chapter extends the discrete time, overlapping generations model of Chakraborty and Das (2005), demonstrating that the inclusion of child mortality reinforces the persistence and prevalence of child labour.
Individuals living in developing economies are subject to a wide variety of risks. Moreover, since private and public formal institutions designed to help individuals coping with risks tend to be weaker and narrower than in rich countries, these risks very often bear a heavy burden on welfare. If the preferences of agents can be characterized by concave utility functions, these agents will want to spread risk across time and among themselves. We focus here on mechanisms allowing agents to share risk among themselves, and we look more particularly at environments where formal insurance options are incomplete or absent. This thesis offers three chapters which goal is to analyze the extent to which risk sharing is affected by imperfections in the insurance or in the credit markets. In the first two chapters, we take a microeconomic perspective and we examine how rural farmers cope with income shocks in village economies characterized by the absence of formal insurance markets. In the last chapter, we adopt a macroeconomic perspective and we look at the role of the domestic financial sector development in fostering risk sharing through financial integration between countries.
The labor market is central to many issues in economics, including business cycles, unemployment, inequality, education, and growth. Moreover, it is the largest single market in most economies and it is fundamental in determining individual and household well-being.
Therefore, a good understanding of the many phenomena that we observe in modern societies requires knowledge of the functioning of the labor market. It is the aim of this dissertation to improve and to deepen this knowledge and it does so by investigating three important labor market phenomena.
In the first chapter, I address the divergence of unemployment rates between the U.S. and Europe. 
In the second chapter, I investigate the life-cycle dynamics of individual job mobility.
The third chapter empirically sheds some light on the causes and consequences of job separation. In particular, it addresses the following three questions: 
(a) What are the factors determining the separation hazard of employment relationships? 
(b) Which employer-employee matches are more likely to dissolve due to a layoff rather than a voluntary quit?
(c) What are the effects of a voluntary quit and a layoff, respectively, on re-employment wages?
This thesis addresses the problem of how to identify and model sources of common fluctuations of economic variables. It is an interesting question not only for researchers but also for policy makers and other authorities. The literature presents two approaches. The first one is based on an assumption that the important structural shocks can be captured by a small set of macroeconomic variables. The most popular models used in this context are structural vector autoregression models (SVAR). The second approach follows from a belief that there exists a small number of factors that affect many economic processes. Therefore, it involves analysis of large data sets, with both time and cross- sectional dimensions large enough to describe the factor structure. We dedicate the first part of the thesis to the problem of identification and estimation of structural shocks in small SVAR models. We follow the ideas of Rigobon (2003) and Lanne and Lütkepohl (2008), which show that the statistical property of the data may provide enough information to identify the structure of the model. The papers argue that a shift in the error covariance matrix allows for the estimation of the structural parameters of interest. The literature concentrates on models in which the shift is a result of a structural brake or a mixed distribution of errors.
Network economics is a fast growing area of study, with a lot of potential for addressing a wide variety of socio-economic phenomena. Networks literally permeate our social and economic lives. The unemployed find jobs using the information and assistance of their friends and relatives. Consumers benefit from the research of friends and family into new products. In medicine and other technical fields, professional networks shape research patterns. In all these settings, the well-being of participants depends on social, geographic, or trading relationships. The countless ways in which network structures affect our well-being make it critical to understand: (i) how network structures impact behavior, (ii) what can be done, in the way of design by policymakers, to improve systemic outcomes. This area of study, broadly called network economics, is at the heart of my research interests. In my dissertation I focus on three specific applications of network theory. The first application concerns networks in trade, where network structure represents the organization of trade agreements between countries. The second application deals with networks in financial market, and the network is used to model the structure of interbank exposures. Lastly, for the third application, I consider networks in labor markets and migration. In this context, the network represents the structure of social relations between people. Each of these applications of network analysis is addressed by one of three chapters in the thesis.
This thesis consists of three chapters that examine different aspects of frictional labor markets in a DSGE framework. In particular, my thesis investigates the implications of different wage bargaining regimes, labor adjustment costs, and endogenous on-the-job search. The third chapter represents my contribution to a joint project with Agostino Consolo from the European Central Bank.
The three chapters included in this thesis all touch upon very different aspects of the disciplines of international trade and economics. The first chapter shows that trade liberalization can lead to a permanent increase in growth rates in a model of selection and imitation. The second chapter takes a very different approach to gains from trade, and demonstrates that trade liberalization can be a potentially effective tool for curbing corruption. The third chapter is more policy oriented, and motivated by the recent explosion in the number of both North-North and South-South regional preferential trade agreements.
This thesis attempts to shed light on the role of financial factors and vulnerabilities in shaping macroeconomic fluctuations. It contributes to the literature that integrates financial factors into the real business cycle paradigm by introducing asymmetries and disaster risk in financial conditions, reflecting the low probability of sharp worsening in financial conditions that is found in data. The introduction of disaster risk in this thesis is done within a small open economy modeling framework. In this sense, while the trigger of disaster events is not endogenized, the emphasis is on exploring the role of financial frictions (such as working capital requirements or time-varying leverage) and of modeling features (e.g. variable capital utilization, the use of imported intermediate inputs, etc.) in affecting the propagation mechanisms when external conditions show a rare disaster pattern.
The first chapter aims at assessing the importance of political connections for the profitability of privately owned firms. The value of connections is estimated using a unique quasi-natural experiment: The September 2006 Thai coup d’état. Connections are found to be potentially very valuable, accounting for as much as 20% of market capitalization for the best connected firms. Benefits from connections include lower taxation and better access to debt financing. Firms operating in domestically dependent industries and industries with high external financing needs appear to benefit the most from being politically connected.
The second chapter incorporates a model of endogenous corruption into an intra industry trade model. The purpose is to study how trade liberalization impacts bureaucratic corruption. We find that trade opening leads to tougher competition and thereby reduces the officials ability to extract rents from firms. We also analyze the incentive for governments to fight corruption and find that incentives are stronger when trade costs are lower. Finally, we empirically test the main prediction of the model, and find that more remote and less easily accessible countries also suffer from higher levels of corruption.
The third chapter aims at estimating trade creation and trade diversion under the South Asian Free Trade Agreement (SAFTA). Previous studies - mainly conducted prior to the implementation of the treaty - have put into question SAFTA’s potential for trade creation. However, according to our estimates, conducted on post treaty data, SAFTA has increased intra regional trade by as much as 40% for eligible products. This figure is higher than estimates for most other trade blocks. Further, trade diversion appears to have been limited, though this is due mainly to the treaty being accompanied by significant reductions in external tariffs.
Does financial globalisation increase inequality? Should households with little financial wealth still hold foreign assets? Are consumption patterns of low income earners more dispersed than those of the rich? Do aggregate savings rise or fall when a society becomes more unequal? These are some of the questions I raise in this thesis. Its central theme is the role of individual heterogeneity in an international economy, with a focus on idiosyncratic risks and income inequality within countries. This allows me to look at some well-recognised policy issues from a new angle, such as the fall in the US current account, which I argue could be influenced by changes in the structure of domestic income inequality. But the combination of the individual with the international level of analysis also enables me to ask new questions, for example whether wealthier households are less biased towards domestic assets in their portfolio decisions than poorer households, and why this could be. The thesis can thus be understood as an attempt to link two literatures that have largely remained separate in the past: that on imperfect domestic risk-sharing, on the one hand, and the international economics literature on the other. This is especially true for chapters 1 and 2. They build on the analysis in chapters 3 and 4, which concentrate on an economic environment where risk-sharing is imperfect because agents cannot commit to honour financial contracts, and analyse the resulting equilibrium and its characteristics in a closed economy.
The traditional trade models, which rely on a comparative advantage based on regions’ technology or endowments, or the new trade theory, designed to explain trade between the countries at a similar level of development, fail to replicate recent evidence on world trade patterns and prices. This evidence reveals North-South specialization across products of the same industries and product groups but different quality, rather than across different industries. Furthermore, countries at a higher level of technological development have higher export prices, which shows that more advanced technology does not necessarily imply higher cost efficiency. Therefore, in order to analyze the endogenous growth mechanisms and implications of the IPR protection policy in a North-South trade set-up, this thesis develops a fully-endogenous theoretical framework based on the notion of quality vintages, which results in the North-South production and trade specialization in different quality segments of the market. The model is used to investigate the growth effects of the South opening to trade and the welfare effects of different IPR policy instruments. Finally, the last chapter abstracts from endogenous growth mechanisms
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The aim of this dissertation is to answer three real life economic questions with the following three chapters. Chapter 1, (joint with Matteo Bobba), deals with the problems of weak instruments in identifying the effects of education on democracy. This chapter shows that when the problems caused by weak instruments are properly considered Education affects Democracy. Chapter 2, (joint with Mario Mariniello), analyzes both theoretically and empirically what are the effects of potential competition on actual competition in public procurement auctions in Italy. A model of endogenous entry in auctions is adapted to inspect the theoretical problem and a regression discontinuity design is exploited to identify the causal effects of advertisement on entry and competition in this market. Chapter 3, (joint with Stefano Gagliarducci), explores the relationship between politics and the functioning of public procurements auctions in Italy. In particular, we use the introduction of the two-limit law in 1993 to identify the causal effect of political longevity in office, longer tenure of the mayors, on several outcomes of the auctions. The channel of discretional renegotiations appear to be the tools to distribute political favors which building entry barrier limits competition at the auction level.
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This thesis presents three papers in macro labor theory. All of them share the particular approach to the theory of unemployment pioneered by Dale Mortensen and Chris Pissarides. In these models unemployment is frictional, and emerges as an equilibrium outcome in an economy where workers and firms are value-maximizing agents trading labor services.
To date, the Mortensen-Pissarides search and matching model has become the standard framework for the macroeconomic analysis of labor markets. The heart of its success lies in its ability to offer an appealing description of the functioning of the labor markets together with analytical flexibility. In my thesis I exploit these virtues of the canonical framework in order to study different topics of interest in the macro labor literature.
This thesis consists of an analysis of different aspects of optimal fiscal policy in dynamic economies, with a special emphasis on the consequences of dropping the assumption of full commitment to future policies: the Third Best environment. As is now well known in the dynamic optimal taxation literature - namely after the seminal contributions by Kydland and Prescott (1977) and Fisher (1980) - the fact that governments choose their fiscal policy sequentially means that they cannot credibly make promises on future taxes that fall on investments made today. When the future arrives, previous choices are bygones and namely the previous investment decisions will have been translated into inelastically supplied factors of production [such as physical and human capital]. It will then be optimal to revise past promises and tax heavily such inputs so as to lower the remaining distortions. As such, each government should set its policy as a best response to the expected, time-consistent, future policy rules. This generally represents also deviating from the second best solution for the first period. The aim of my dissertation is to provide new insights on how should benevolent governments optimally set their fiscal plan in scenarios where policy is chosen sequentially [as it is done in real economies] and to contrast the obtained results both to what we observe in developed economies and to the Second Best. Furthermore, special emphasis will be put on the design of the fiscal constitutions and its role in alleviating the burden of policy discretion over social welfare. For that, I will focus on two particular examples of the time-inconsistency problem in intertemporal policy making, hoping that the lessons derived therefrom can be extended easily to qualitatively similar problems.
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In this thesis I aim to contribute to the labor economics literature by casting more light on i) measurement errors regarding data on occupational affiliations, ii) worker mobility across occupations and iii) wage differentials between part-time and full-time workers with comparable skills. Throughout, I focus on German labor markets. Germany is one of the major economies in the world and the most important one in Europe. I employ individual level panel data from the German Socio-Economic Panel (GSOEP). The GSOEP has started in the Federal Republic of Germany in 1984 with around 12,000 respondents representative of the entire residential population. Since then, several samples are added occasionally to reflect the changing population structure of the Germany, like the expansion of the GSOEP to the former German Democratic Republic in June 1990. GSOEP has several advantages as it is based on a rather stable set of questions regarding the demographics, education, earnings and labor market dynamics. Due to its panel data structure, individuals can be followed over time. Together with recently developed econometric methods for panel data, this allows for analyzing the importance of dynamics in individual’s decisions.
Oil represents a key commodity in the world energy market and it is not a surprise that its price is largely viewed as one of the leading indicator of the global economic health. Therefore, the recent soaring up of the price of oil has generated a large concern about its potential e¤ects on global economic activity. Indeed, even thoughmost developped economies are generally better prepared to deal with oil shocks nowdays than in the 1970s (better conduct of monetary policies, technological progress), the e¤ective role of oil price shocks in a¤ecting macroeconomic performance is still debated. The aim of this thesis is then to investigate some aspects of the relationship between oil and the macroeconomy by means of both an empirical and a theoretical analysis.
This thesis deals with different topics on international macroeconomics, in particular on business cycles in small open economies, the motives for net foreign asset accumulation and the transmission of shocks in an international framework. The three chapters deal with very different issues and different degrees of modeling complexity. There is an eternal discussion between the trade-off between simple models that target to understand a little piece of the macroeconomic mechanism and more complex models that are closer to reality. The first two chapters are more simple and their main contribution relies on the analysis of very particular issues, such as the role of expectations and the role of risk aversion. The last chapter tackles with a sophisticated 2-country model with vertically integrated firms to analyze the transmission of shocks.
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This thesis deals with a number of different topics in the field of international macroeconomics. It proposes theoretical models of the open economy to think about and analyze questions such as the effects of financial globalization, countries' external adjustment mechanism, international relative prices, or the world's state of global imbalances.
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The inclusion of findings from psychology into economics (see e.g. Rabin (1998)) and the increasingly available evidence of deviations from the standard model of behaviour in economics (e.g. DellaVigna (2007)) have given rise to a new sub-discipline of economics, behavioural economics. Behavioural economics studies deviations from the standard economic model in three respects: first, non-standard preferences, second, non-standard beliefs, and third, non-standard decision making. The study of self-control problems can be regarded a subfield of the study of non-standard preferences. A general definition of self-control problems is the inability to stick to a decision or the inability to carry out a plan. This inability might result from time-inconsistent preferences, i.e. preferences that make people judge objectively equivalent trade-offs differently only due to the fact, that they make these judgements at different points in time. The recent years have seen a surge of theoretical literature establishing a theoretical framework for the analysis of self-control problems and applying this framework to many fields (see Frederick et al. (2002), and Chapter 1). Some contributions have also assessed the effect of self-control problems on different outcomes empirically. My thesis is an attempt to contribute to this empirical literature. I try to assess the effect of self-control problems on different outcomes of interest, namely credit card borrowing and saving. After surveying the relevant literature in Chapter 1, I discuss the measurement of self-control problems in Chapter 2. Chapter 3 is an attempt to assess the effect of self-control problems on credit card borrowing and Chapter 4 is an attempt to assess the effect of self-control problems on saving in illiquid assets. I use data from a recent household survey from Australia.
This thesis addresses the issue of the relative performance of dynamic factor models in finite samples in the presence of structural breaks. It extends an existing literature by considering new data sets and evaluating finite sample properties of dynamic factor models and factor-augmented VARs and VECMs in Monte Carlo exercises.
Chapter 1 Forecasting Emerging Market Indicators: Brazil and Russia
Chapter 2 Co-Breaking and Forecasting Performance of Factor Models
Chapter 3 Factor Augmented Error Correction Models
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This thesis aims at shading light on three issues which are at the forefront of the European Commission’s agenda. The first two chapters deal with the issue of state subsidies and their impact on market competition and development. Both papers design a theoretical setting where such impact can be assessed and provide for the tools needed for welfare analysis. The third chapter, instead, is mainly empirical and aims at measuring the effect on competition due to an increase in advertising in the context of public procurement auctions. Throughout this introduction, I will briefly describe the motivation and the main insights underlying each chapter.
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This thesis contains several lines of research conducted during my four years at the European University Institute. It deals with two distinct topics in the area of recursive economies, developed in three chapters. The first chapter considers a general class of recursive models in which inequality constraints pose a challenging problem: Standard Dynamic Programming techniques often necessitate a non established differentiability of the value function, while Euler equation based techniques have problematic or unknown convergence properties. The second chapter studies a model of optimal redistribution policies in which agents face unemployment risk and in which savings may provide partial self-insurance. Moral hazard arises as job search effort is unobservable. The optimal redistribution policies provide new insights into how an unemployment insurance scheme should be designed. The third chapter studies a very similar model to that explored in Chapter 2. In contrast, however, I impose a liquidity constraint that limits agents' possibility to borrow. As will be shown, this additional constraint will have salient quantitative implication on how an optimal unemployment insurance programme should be designed.
My thesis consists of three independent chapters. Each of them is an empirical study using time series techniques to learn something about the macroeconomy. Hence the title "Essays in Applied Macroeconometrics". Whilst the first chapter is a rather descriptive analysis of the functioning of European bond markets when public news come out, the second and third chapters are guided by business cycle theory and use this theory in the estimation of the models. The next section gives a very brief overview of the thesis. The first chapter. "Macroeconomic News and the European Bond Market", is an empirical analysis of how the European bond market reacts to macroeconomic announcements and in particular to news in those announcements. The second and third chapters study the causes of the US business cycle and the functioning of the US labor market. The second chapter, "Shocks and Adjustment Costs in an estimated BBC model for the US", takes the simple RBC model and asks which real shocks and which factor adjustment costs matter for the US business cycle in such a model. The third chapter, "Dynamic Beveridge and Phillips curves: A macroeconoinetric analysis of the US labor market", investigates in more detail the frictions in the IJS labor market. Although chapters two and three are empirical in nature, they are firmly grounded in dynamic stochastic general equilibrium (DSGE) theory and make heavy use of this theory in the empirical analysis. The rest of this introduction summarizes each chapter in some more detail.
There is little doubt that fiscal policy plays an important role in business cycle fluctuations; however, the ability of fiscal policy measure to work as a countercyclical stimulus has recently been questioned (see Taylor, 2000), in light of the efficiency and transparency of monetary policy interventions. Far from postulating a definitive answer to the debate, the objective of this dissertation is to contribute to a better understanding of the transmission mechanism of fiscal policy shocks, through their interaction with the consumption behaviour of private agents. The fundamental contribution of this thesis is the introduction of different forms of households’ heterogeneity in the analysis of the effects of government expenditure shocks and tax cuts.
Originally, the term business cycle referred to combination of periods of economic expansion and decline, however the concept has been enlarged to include fluctuations of growth around the trend, that is, combinations of periods when growth is higher than the long-term growth with periods when it is lower.
This dissertation is composed by three independent chapters. Their common denominator is that they all deal with game theory, either contributing to this branch of microeconomics from a theoretical point of view, or using a game theoretic approach in analysing a specific problem.
International trade and trade liberalization is the logical nexus through this thesis. Not only trade volumes have largely expanded after World War II, but - perhaps less known - also the number of developing and underdeveloped countries opening their markets to international trade has increased sharply in the 80s and the 90s. During the period 1960-1998 the average share of import plus export in total GDP rose from less than 0.55 up to 0.75 and the total volume of merchandise trade rose steadily at a rate of 10.7%. The greater openness of many developing countries is mirrored by the large membership WTO has reached - almost 150 countries. While the number of participating countries at the first round of GATT in 1947 were a bit more than 20, slightly above 100 were sitting in the last GATT round (the Uruguay round).
Innovative ideas, development of skills and job search- these are not only the constitutive elements in the life of a doctoral researcher but also of this dissertation. The three chapters presented in the following apply the concept of general equilibrium to topics related to technological innovations and labor markets. Thereby, the thesis combines strands of the industrial organization literature with the growth literature- and includes a chapter with business cycle analysis.
Overall deforestation is at the frontier of development and the environment, and forests constitute both an environmental concern and a renewable resource. Deforestation and forest issues are therefore a very interesting and challenging research object.
On the Ist of January 1999 eleven European Union (EU) members fixed their currencies to form the Economic and Monetary Union (EMU). In the run-up to the formation of the euro area candidate countries had to fulfil a set of entry criteria laid down in the Treaty of Maastricht. These consisted of limitations on nominal exchange rate volatility, and on the levels of inflation, interest rate, public debt and fiscal deficit. After the successful formation of the common currency, the countries gave up individual monetary policy to the European Central Bank (ECB), which supposedly, at least for some, meant a gain in credibility and a substantial change in monetary policy in general. Finally, following the latest wave of EU enlargement, which took place on the 1st of May 2004, in the next years we can expect new members to be aiming to join the euro. The five nominal criteria will most certainly be applied to future enlargements. Whilst before EU entry practically all candidate countries declared a willingness to join the euro ”as soon as possible” the question whether they are ready and suitable to do so, is important.
This thesis applies microeconometric methods to analyze various economic research questions using different data sources.
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This thesis, which provides an account of research conducted at the European University Institute between 2002 and 2006, is an application of microeconometric analysis to testing models suggested by economic theory. It consists of three chapters which are selfcontained and can be read independently. While the chapters deal with different topics (two are 6 related to labour economics and one - to corporate finance and governance), it is the use of microeconometric methods - regression analysis of cross-sectional and panel data on the level of individuals or firms - that bring them together in this volume under this title.
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This thesis straddles two seemingly quite distinct fields within macroeconomics, namely endogenous growth and business cycle theory. The unifying element of the thesis is the fundamental role played by firm entry and exit in each chapter. In the longrun, I find that if entering firms imitate incumbents, firm turnover promotes growth by removing inefficient firms and replacing them by more productive ones. In the shortrun, fluctuations in the number of firms lead to movements in sectoral relative prices. In particular, pro-cyclical net entry leads to a fall in the price of investment in terms of consumption goods during booms; those relative price movements may be delayed if it takes time to set up a firm. The first chapter deals with the long-run effects of firm turnover. I set up a dynamic general equilibrium model with firm-specific productivity shocks. Those firms whose productivity has fallen too low exit, and entrants’ expected productivity is a function of current average productivity. Because of the resulting selection and imitation process (similar in some ways to the concept of natural selection), aggregate productivity in the economy grows endogenously. When calibrated to U.S. data, the model suggests that around one-fifth of productivity growth is due to such a selection effect. The following two chapters deal with the short-run effects of net firm entry within a framework of imperfect competition. I argue that the counter-cyclical  fluctuations in the price of investment in terms of consumption goods which are observed for the U.S. are due to pro-cyclical competitive pressure through variations in the number of firms. The idea is that, since investment is much more variable than consumption, competition will be more variable in the investment sector, thereby pushing down prices more strongly in the latter sector during expansions.
This thesis looks at the issue of growth and technology adoption in two areas, Örstly the impact of the oil price shocks of the 1970s and secondly the optimal protection of intellectual property rights in a world of cross-country income differences.
Public utilities provide fundamental services both to households and firms. Continuous, adequate, and reasonably priced supplies of water, electricity and gas are essential for healthy living in every modern society. Moreover, while there is no direct physical need for telecommunication services, in today’s information economy they have clearly become a social need. At the same time infrastructure sectors are key for sustained economic growth and international competitiveness, since they also provide necessary inputs to firms, allowing them to produce and interact with both suppliers and customers. In this dissertation we will analyze some important policy issues that emerge in relation to these sectors.
The topic of this thesis is optimal reimbursement of healthcare providers.
Are migrants from a transition economy positively self-selected not only with respect to observable characteristics, but also with respect to the unobservales? Moreover, since the decision to migrate is endogenous, what are the causal returns to geographic mobility, net of unobservable confounders? Finally, does gender matter? Do female migrants from a transition economy experience a gain or a (double) disadvantage in the western labour market of being both female and migrants compared to female stayers and to male migrants?
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This thesis adheres to the fundamental principle of maximizing behavior and equilibrium and shows how behavioral economic assumption of preferences, which go beyond self-interest, makes microeconomic theory applicable to a broad field of social behavior, where traditional models fail. All three thesis chapters are self contained but the thesis evolves from modelling social preferences and an analysis of their behavioral consequences in bargaining situations to an empirical test of their prevalence.
This thesis deals with the transmission of shocks, i.e. how economics adjust to unforeseen changes in either exogenous circumstances or policy variables. It is divided in three parts, including this introduction. The second part, containing two chapters, is devoted to the transmission of monetary shocks in closed economies. Chapter 1 looks at frictions at the price-setters side and chapter 2 at frictions at the consumers' side. Both chapters are developing alternative, more micro-founded explanations to the nowadays standard model in New Keynesian Economics, in which price setters are exogenously forced to set prices only at random dates.
This volume collects together three papers in applied labour economics. They have in common the use of an outstanding panel of linked employer-employee data that covers almost all of the wage earners in the Portuguese private sector (more than 2 million workers). Beginning in 1982, and continuing on a yearly basis, every' firm with wage earners has been legally obliged to reply' to tins inquiry' by the Ministry' of Labour and Solidarity'. Reported data match the firm, the establisliment and each of the workers, and include the workerﾒs gender, age, skill, occupation, schooling, tenure and earnings as well as the firmﾒs location, industry' employment level, sales volume and legal setting. The existence of a unique identification number (social security number) for the workers and firms enables the construction of a panel of worker's or firms
This thesis deals with economic growth theory. By growth theory I refer to that field of economic theory which studies through mathematical models, the mechanisms behind the growth of the main macroeconomic variables like capital, consumption and output. These economic mechanisms depend crucially on the set of hypothesis which the model is built on. Relax some of these assumptions, or change some of them, in order to increase the explicatory power of the model is one of the main objective of the theoretic macroeconomist.
This thesis consists of three empirical essays analysing firm and plant dynamics. In particular, the thesis examines the determinants of firm entry and exit, survival of new plants and firms’ decisions to open and close down plants. Several studies (e.g. OECD (2003) and Foster, Haltiwanger, and Krizan (2001)) have shown that micro-level dynamics contribute to aggregate productivity growth through a process o: creative destruction where the most successful business units survive and new units replace less productive old units. New firms and plants are also thought to have an important role in innovative activity and technological progress. Furthermore, each decision to establish a new business unit and to close down an existing unit involves the creation and destruction of jobs. From the policy perspective, it is thus important to understand the determinants of micro-level dynamics behind the aggregate economic and employment development.
The economic and monetary union (EMU) is characterized by a framework for economic policy-making in Europe which is unique. While the single monetary policy is oriented towards a Union-wide objective, namely the maintenance o f price stability, the other policy areas involving fiscal and wage policies largely remain the competence o f national governments and other national actors. This thesis investigates some o f the mechanisms o f propagation o f asymmetric shocks in a monetary union and the effect that they may have on the conduction of policies and ultimately on macroeconomic variables. In the context o f the European Monetary Union (EMU), and without any pretension to be exhaustive, the question is addressed o f whether the current framework o f policy coordination, based on a common monetary policy oriented to price stability, national autonomy o f fiscal policies within common budgetary rules and wage policies determined at the national level, is appropriate in ensuring macroeconomic stabilization. The focus on asymmetric shocks is due to the specific importance they have in a monetary union. In the case of symmetric shocks, the situation is not veiy different from that o f a country which has its own currency. On the other hand, the effects of asymmetric shocks on policies and macroeconomic outcomes in a monetary union was (and probably is) not yet completely understood. It is partially because o f this lack o f understanding that the presence of big asymmetric shocks was used by economists as a criterion to decide whether a country should join the EMU.
In three essays, this thesis contributes to the literature by examining a multinational firm’s mode of serving a foreign market in different contexts. In doing so, it also looks at host country effects of foreign entry such as competition, changes in market structure and productivity. The first chapter examines to what extent policy measures aimed at reducing trade and investment barriers can induce firms to increase their trade and foreign direct investments inside an integrating region. In the second chapter, the question is how a multinational’s mode of entry affects the decisions of firms in the host country industry and what implications this interaction has for market structure, investments and welfare in the host-country. While the first two chapters attempt to rationalise empirical observations in theoretical models, the third chapter is an empirical analysis. It examines whether foreign and domestic firms differ in their contributions to productivity growth. It also explores whether greenfield entry and entry via acquisition have a different impact on the productivity of host-country firms. The remainder of this introduction provides a non-technical summary of the three essays and their main contributions.
Essays in cointegration analysis never was the working title of the work in progress for the last seven years. I started this project with the aim of doing applied research in economics and econometrics. Hence the last chapter of this thesis, Money demand in the Netherlands, was the first chapter written. Yet that very first version, written in Florence in 1998, bears little resemblance to the present version, included in this thesis. The only substantial agreement with the first version are the data used: the short term interest rates were collected from private banks in the Netherlands: as they increasingly offered above money-market interest rates to retail investors, those official interest rates were not relevant for retail investors and even small firms. That interesting problem - the irrelevance of money market rates to money demand - was thus solved rather quickly. Yet the other five chapters all evolved from practical problems, I ran into, during the cointegration analysis of the Dutch data set. I shall thus very briefly describe the cointegrated VAR models and then discuss in turn the problems, these chapters deal with. Each chapter is stand-alone, in that it can be read without having to read any of the others first: this also means that short general overviews of the methodology are presented in each one of them and not repeated here. This introduction just points at the general problems tackled in the papers. For each of the chapters, Matlab programs are available to replicate the results. These are included on a CD, which is part of this thesis. Two programs have been developed into stand-alone packages: 'me2' for maximum likelihood estimation of I(2) models and 'datamine' for the automatic identification and restriction of the cointegration space. Both of them are used in the replication of the results. The replication notes are thus a good starter for using these programs.
This thesis is motivated by the observation that the time series properties of financial security prices can vary fundamentally with their sampling frequency. Econometric models developed for low frequency data may thus be unsuitable for high frequency data and vice versa. For instance, while daily or weekly returns are generally well described by a martingale difference sequence, the dynamics of intra-daily, say, minute by minute, returns can be substantially more complex. Despite this apparent conflict between the behavior of high and low frequency data, it is clear that the two are intimately related and that high frequency data carries a wealth of information regarding the properties of the process, also at low frequency. The objective of this thesis is to deepen our understanding of the way in which high frequency data can be used in financial econometrics. In particular, we focus on (i) how to model high frequency security prices, and (ii) how to use high frequency data to estimate latent variables such as return volatility. One finding throughout the thesis is that the choice of sampling frequency is of fundamental importance as it determines both the dynamics and the information content of the data. A more detailed description of the chapters follows below.
The neoclassical theory of discrimination is almost entirely a demand-side theory. There are very few contributions where workers’ heterogeneity matters, and even fewer that study the possibility that unequal outcomes may arise or persist for reasons attributable to workers’ expectations. This dissertation is aimed at filling this gap, analyzing the role that workers’ expectations may play in explaining the long-run persistence of unequal outcomes that characterize some minorities in the labor market. The first chapter introduces a generalization of the Self-Confirming Equilibrium concept to the case of aggregate observable outcomes, i.e. when players at the end of each round observe also the outcomes of games in which they are not directly involved. Such an extension becomes necessary to characterize the equilibria of a game, like that presented in Chapter 2, where social learning is assumed to be more important than individual outcomes directly observed by the agents. Moreover, aggregate outcomes ensure that Self-Confirming Equilibria do not rely on agents accessing different information. The second chapter presents a model that analyzes the role of minority workers’ expectations of being discriminated against. The model is formalized as a two-stage game of incomplete information in wThich populations of workers and employers are engaged, and where the preferences and beliefs of both sides of the labor market matter. In every repetition of the game played by actors randomly drawn from their populations, three players participate: one employer and two workers, one of whom belongs to a minority group. The employer promotes one (and only one) of the two workers after having observed their effort, which is a function of unobservable taste for work. Crucially, promotions depend via effort on workers’ expectations about the unknown employer’s type, which captures the possible disutility of promoting a minority worker.
This thesis aims at contributing to the analysis of the issues of collusion and mergers from an industrial organization perspective. The thesis is composed of three main chapters. In what follows each of those chapters will be discussed in greater detail. In particular, I will briefly describe the model considered in each chapter, its relation to the literature, and the contribution each chapter makes to the existing literature. Chapter one deals with the issue of entry and collusion both theoretically and empirically. In particular, it re-considers Green and Porter’s (1984) model of collusion with imperfect monitoring (in the price version, as in Tirole’s (1988) textbook). In this model with homogeneous goods, a firm can either charge the monopoly price to share the market with other firms or secretly undercut its rivals to get the whole market. Since market demand is affected by stochastic factors, firm’s demand could be zero even when no firm is deviating. Given that the only available information to each firm is its own sales, it is difficult for them to infer whether a low demand is caused by a secret price cut or it is just due to a “bad” demand shock. In equilibrium, the firms need to start a price-war (i.e., charge the competitive price) when the demand is zero to maintain the incentive to charge the monopoly price in the collusive phases. As a result, a price-war occurs with positive probability as an equilibrium phenomenon.
Worker mobility is an essential part of transition from the socialist plan to a market economy. However, not all worker mobility is the same and the type of mobility is important for success in transition. Two features of worker mobility are particularly vital for a successful transition. First, according to the European Bank of Reconstruction and Development (EBRD): ”...higher mobility is not necessarily desirable in itself. What is desirable is reallocation from less to more productive enterprises” (p.104; EBRD, 2000). This comment suggests that the direction of worker mobility matters. In the transition context higher productivity is a priori associated with private ownership, an assumption that is supported by empirical evidence. As a result, it is possible to rephrase the comment by stating that mobility from state jobs to private employment is more desirable than other types of worker mobility. Second, the human capital characteristics of workers that move are important. Workers are different in the amount of human capital and skills that they possess, and consequently, some workers are more productive than others. Assuming that the private sector is more efficient in its use of resources, the reallocation of workers with high human capital and skills to the new private sector is more desirable. Moreover, the reallocation of human capital determines growth of the new private sector. The private sector requires workers and their skills - educated professionals, skilled machine-operators, as well as those who are able to adapt to the new environment - in order to grow and be productive.
Agriculture is currently being liberalized. In industrialized countries, it consists in reducing agricultural support, while in developing countries, agricultural taxation has to be reduced. Simultaneously, the farmer’s status has significantly changed over the last two decades, both in industrialized and developing countries, with more and more farmers also having off-farm occupations. This dissertation describes these changes, and provides a quantitative assessment o f the distributive effects of agricultural reforms. Indeed, these reforms lead to dramatic consequences in terms of welfare distribution, between farmers and non-farmers, and among fanners themselves. This analysis complements already existing studies by taking into account the changing definition of a farmer, leading to new results about the agricultural instruments most adapted to different economic, political and social objectives. The methodology used is a calibrated mono-country general equilibrium model, applied to the European Union and to a very poor representative developing country, where the share o f agriculture in the economy is very large. The main results show that, in both kinds of countries, agricultural liberalization improves the global welfare o f the society, although some groups suffer from it. Indeed, in the European Union, farmers' s welfare decreases dramatically when agricultural support measures are eliminated. Some compensation schemes should hence be implemented, and direct payments appear to be the best instrument to target specific farmers. In developing countries, agricultural liberalization is likely to hurt the most vulnerable part of the society, urban poor and rural small producers. In this context, the elimination of the production tax should be preferred to that of marketing boards.
This thesis is composed of three papers that analyse the interaction of law and economics. The first paper is a study of the attempts to use whistleblowers to control corporate crime. The paper asks which type of reward system is likely to promote welfare enhancing levels of whistle-blowing: large rewards will tempt more whistleblowers, but some of these may have fabricated the evidence in the hope of misleading the courts. The optimal level of rewards depends on the accuracy of the legal system, and if the legal system never makes mistakes then corporate crime can be eradicated. In the second paper the focus shifts from the individual to the firm and to opportunities for profiting in the stock market. The paper comes in two parts. The first investigates predation when the predator can take short positions in the shares of the predated firm. The second part investigates the effect of long and short positions in one's competitors' shares on cartel stability. In the third paper I return to the individuals within a law breaking firm, but this time I concentrate on the executives and their remuneration. The paper empirically tests whether the executives in firms that breached the UK competition laws were compensated for the extra risks inherent in breaking the law. In the rest of this introduction I describe each paper in more detail.
Despite the fact that mergers are a ubiquitous phenomenon of economic life, the reasons why firms do merge are yet only poorly understood. This thesis attempts to improve our theoretical understanding of mergers. A merger consists of a legal transformation through which two or more formerly independent firms come under common control. Mergers are particularly interesting and pose a wide variety of research questions due to some stylised facts. World wide merger activity was outstanding during the last decade (peaking in 2000 with a volume of more than $3 trillion US dollars1), showing that the merger strategy has been preferred to alternative corporate strategies such as re-structuring or expansion. Despite these intense merger movements, there is no clear evidence that firms improve performance after merging. On the contrary, indicators tend to point to a poorer performance relative to the industry. Finally, and perhaps most interestingly, mergers appear to occur in ’waves’. Waves in the sense that the number of past mergers affects positively the number of current mergers up to a point where the number of mergers starts smoothly decreasing. The current merger movement that initiated the downturn in 2001 corresponds to the fifth historical merger wave, being the first one back in the nineteenth century. The findings on poor post merger performance apply to most of the previous waves.
The academic literature has developed a number of "standard prescriptions" for the privatization and regulation of utilities. The main purpose of this thesis is to qualify some of them, and build on the qualifications to find new insights. Although these prescriptions have not been endorsed universally, they permeate most of the theoretical and empirical work done in the recent past. In general, they constitute a benchmark that has enriched our understanding of the many economic issues related to the role and performance of privatized, regulated firms. These standard prescriptions are broadly based on the British experience and some specific strands of economic theory. By and large, progress has been made in reforming countries using these standard prescriptions. But the British experience can today be complemented with the experience of other countries, and with new developments in several fields of economic theory. The evolution itself of the British privatized industries, interacting with the evolution of the political cycle in the U.K., also helps to give a more balanced and complex view of this field.
This thesis was written out of the desire to gain a deeper understanding of competition in imperfect markets, in particular oligopolies. Firms have many possible strategies at their disposal that may effect present and future payoffs, and the structure of their markets. In the first two chapters we study R&D and innovation, that have received an ever increasing amount of interest, for a variety of market frameworks, including Cournot and Bertrand oligopoly, and repeated patent races. Here firms compete by innovating; we study how they do it, and in which direction competition will evolve. Still, many questions remain unanswered even in now classic static models of oligopoly, as the Cournot oligopoly, which he have used as a building block in the first two chapters. In chapter 3, we set out to examine the equally classical questions of existence and uniqueness of equilibrium, and the reaction of the market to the entry of new firms. Our analysis is innovative since it deals with heterogeneous goods and makes use of a very new set of methods.
In this thesis cointegrated vectorautoregressions are used to explore the empirics of the intertemporal approach to the current account recently popularized by Sachs (1981), Obstfeld (1986), Obstfeld and Rogo? (1995a,b), Razin (1995), and Obstfeld and Rogo? (1996). The theoretical framework will be given throughout by quadratic models that allow for simple closed-form solutions. These models are not of particular theoretical interest but rather serve to motivate an important reduced-form implication that should also survive in more complicated model settings: the current account should be an order of magnitude less persistent than its driving forces, savings and investment. This prediction can be formalized as a cointegrating restriction in VAR-approximations of the data dynamics.
Testing economic theory on the basis of available data sets through econometric modelling is only legitimate if each condition of the entire collection of underlying assumptions is satisfied. This, at first glance obvious, statement has more implications than many of the practitioners of econometrics in the field are aware of. Even on a theoretical level, econometricians seem to show little agreement about the recommended modelling strategies or estimation procedures. This is imputed to the highly non-experimental nature of economic data and the fact that in many cases the theoretical variables do not coincide one-to-one with the available observed data. Disciples of both Fisher’s experimental design paradigm or Gauss’s theory of errors have to assume that the mechanism which generates the data is a nearly isolated system. See Spanos (1993) for an exposition of these different methodologies. This means that the systematic explanatory part of the model is somehow fixed or predetermined and the error terms can be viewed as non-systematic effects of omitted influencing factors or mismeasurement. In sharp conflict with this assumption, economic data is held to be generated by a fickle process where explanatory variables are often endogenous and influential factors show up and disappear. Usually, a specific economic theory only considers a sub set of the systematic explanatory components and makes predictions under the assumption that the influential factors which have been put aside are Constant. These ceteris paribus clauses often do not hold when analyzing real data sets.
Stochastic dynamic general equilibrium models have become in recent years the central paradigm for the analysis and understanding of macroeconomic fluctuations. As Gali (1995) puts it, though early applications to business cycle models (e.g., Kydland and Prescott (1982)) were generally restricted to model economies for which technology shocks were the only sources of fluctuations, and where built-in classical assumptions guaranteed the optimality of equilibrium allocations, the flexibility of that paradigm has been illustrated in a number of recent papers which have developed models of economies characterized by the presence of non-classical features (e.g., imperfect competition as in Rotemberg and Woodford (1991), Gali (1994) or Ubide (1995) and/or alternative sources of fluctuations (e.g., shocks to government spending as in Christiano and Eichenbaum (1992) or Baxter and King (1993)). These efforts to enrich the basic framework have been conducted with the objective of improving its empirical relevance and performance.
The present thesis consists of three applied studies dealing with aspects of the recent macroeconomic performance of the Greek economy. They all aim to pursue and to link two different kinds of issues: a) The first one is to derive useful insights into the functioning of the Greek economy during the post 1974 period. That is of particular interest given the country’s poor macroeconomic performance in comparison with its post-war experience. In addition, the period covers the effects of a number of important policy regime shifts (restoration of democracy in 1974, admission to the EU in 1981, switch in macroeconomic policies in the mid 80’s) and therefore can be of use for making inference on the effects that institutional and policy regime changes have on economies. b) The second one has to do with the implications that methodological issues have on econometric modelling.
Several empirical studies of the inter-industry wage structure tend to show results which do not seem consistent with the competitive model of the labour market. Pieces of casual evidence like the one just quoted are confirmed by a number of more detailed investigations. These suggest that some industries might pay higher wages than others, even when differences in (observable) labour quality are taken into proper account. In other words, equal employees may not be paid equal wages across industries. Inter-industry wage differentials also seem a very stable phenomenon over time, across countries and across occupations. According to existing work, today’s high- and low-wage industries tend to be the same as those at the beginning of this century and, moreover, have remained in these relative positions during the whole intervening period; high- and low-wage industries appear to be the same in several countries, especially developed capitalist economies; and, wage differentials seem to be stable with respect to different occupations within the same industry.
This dissertation analyses the efficacy of stabilisation policies in the early period of transition to the market, marshalling evidence from the experience of three countries - the Russian Federation, Poland and the Czech and Slovak Federal Republic (CSFR). The Russian experience is the central focus, whilst evidence drawn from Poland and the former CSFR allows more rigorous testing of the central analytical conclusions. What can such a study add to the arsenal of economics? The nature of the Russian inflation and stabilisation remains a theoretically and empirically disputed question, with critical policy implications. Thus the systematic, analytically-based account of this, underpinned by econometric evidence, could be considered a contribution on its own. Clearly this account is also one more opportunity for empirical examination of fundamental theories on the nature of inflation and the impact of alternate stabilisation measures, still much disputed in the literature. A key conclusion of this part of the work has been that inflation in Russia was mainly a monetary phenomenon, and that the expansion of the money supply has been driven by the size of quasi-fiscal expenditures and the way they were financed. The reader will find standard modelling of the Russian case.
This thesis analyses strategic firm behaviour in international markets. It extends models of entry deterrence with informational asymmetries to scenarios with multinational firms. We see that trade policy has not only a direct effect on competition but also an indirect effect through influencing the actions of domestic producers.
The telecommunications industry is in the throes of rapid technological and regulatory change. Markets for terminals and services have been liberalized, and only the provision of networks has remained under the control of national operators. This book analyses from an economist's point of view the benefits which may be expected from the introduction of network competition in Europe, and describes how competition can be reconciled with social objectives. The author first looks at the latest technological developments and discusses the impact of new transmission systems such as mobile phones and satellites, and the convergence of broadcasting and telecommunications. He goes on to weigh up the arguments for and against network competition, looking in particular at the natural monopoly view and at universal service. The third part of the book compares policy in Europe and the USA, with a detailed analysis of the European Commission's approach, and an up-to-date view of the regulatory frameworks in five European member states. Finally, the author sets out a strategy for network competition in Europe which takes into account both the latest developments and the characteristics of the European environment.
Introduction; One aspect of the analysis of regional problems is that it is easier to describe the symptoms than to point to the causes. We begin this chapter by highlighting a few of the most evident "symptoms" of the regional problem. Some of the possible causes are then discussed. Thirdly we look into the overall pattern of regional development at the European Community level. This is discussed, (i) at a theoretical level with reference to location theories and theories of spatial competition; (ii) at an empirical level with respect to regional employment and industrial structures, and (iii) at a dynamic level, taking into consideration factors which may explain the process of economic growth at a regional level. Fourthly, we consider the implications of greater interEC trade links and direct foreign investment on the pattern of regional development. This leads on to a discussion of the regional implications of the multinational enterprise — the locational aspects, the distribution of their economic surplus, and their linkages with firms in the domestic sector. Fifthly, some alternative strategies for regional harmonisation are outlined. Policies to reduce regional disparities can be divided into two groups; firstly macropolicies working at either a national or Community level, such as public spending or fiscal integration; secondly micro-policies such as financial incentives and disincentive policies.
This study is an attempt to analyze labor conflicts in France, Italy, and the United Kingdom since World War II. More precisely it will focalize on a particular expression of labor conflicts, namely, strikes, which are defined by Hicks as an "abstension from work, usually planned, by a considerable number of workers." This definition includes two elements, the group factor and the organizational factor, that distinguish! strikes from -other forms of work conflicts such as lateness, registered or unregistered sickness, or absenteeism. In fact, these two elements are always present during a strike and contrast with the individuality and the individual willingness which are present in other forms of conflict usually grouped under the heading of "unorganized conflict".
Under present international arrangements, central banks are virtually free to decide on whether or not to pursue exchange rate policies; similarly, in the domestic asset markets, they may choose to peg an interest rate or an other, or else to operate with aggregate targets.
The overall aim of this dissertation is to investigate from a theoretical and empirical point of view thè determinants of thè capitai account of thè balance of payments with special regard to a small, open economy. As an empirical case study, I have chosen Denmark, which I know particularly well, but, unfortunately, Denmark is somewhat atypical to thè textbook models, because of its rather tight capital Controls.