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Title: Essays in Macroeconomics

Citation Type: Dissertation/Thesis

Publication Year: 2016

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Abstract: In the first chapter of this dissertation, I propose a methodology to conduct counterfactual analysis in a way that is robust to specific assumptions about primitives of linear models of dynamic stochastic economies. Then, I apply the methodology to quantify how fiscal unions contribute to regional stabilization. I start by showing how to identify a set of models that yield the same counterfactual equilibrium after a policy change by imposing restrictions directly on equilibrium equations. Next, I describe how to construct this counterfactual equilibrium using data under a benchmark policy. The methodology allows obtaining quantitative predictions with respect to policy changes with minimal a-priori structural assumptions while being immune to Lucas critique, enhancing credibility of the analysis. In the application to fiscal unions, I focus on models where the federal government redistributes resources via a transfer policy rule, which is a function of local variables, in order to smooth local shocks. Using US state-level data, I construct a counterfactual US economy without the rule in place. This counterfactual is identical in many fiscal union models with rich features, such as nominal rigidities and asset market incompleteness. My primary finding is that during the Great Recession fiscal integration significantly reduced cross-state employment differences by redistributing resources from states that were doing relatively well to states that were doing relatively poorly. Finally, I discuss how the methodology can further be used to falsify a set of models, provided data before and after a policy change are available. In the second chapter of this dissertation (joint with Erik Hurst and Juan Ospina), we study the aggregate implications of regional business cycles. We argue that it is difficult to make inferences about the drivers of aggregate business cycles using regional variation alone because (i) the local and aggregate elasticities to the same type of shock are quantitatively different and (ii) purely aggregate shocks are differenced out when using cross-region variation. Then, we highlight the importance of these issues in a monetary union model, and by contrasting the behavior of US aggregate time-series and cross-state patterns during the Great Recession. In particular, using household and retail scanner data for the US, we document a strong relationship across states between local employment growth and local nominal and real wage growth. These relationships are much weaker in US aggregates. Finally, in order to identify the shocks driving aggregate (and regional) business cycles, we develop a methodology that combines regional and aggregate data. The methodology uses theoretical restrictions implied by a wage setting equation that holds in many monetary union models with nominal wage stickiness. We show how to estimate this equation using cross-state variation-- thus linking particular . . .

Url: https://knowledge.uchicago.edu/record/543

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Authors: Beraja, Martin

Institution: University of Chicago

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Data Collections: IPUMS USA

Topics: Methodology and Data Collection, Other

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