Browsing by Author "Kehrig, Matthias"

This dissertation has three independent essays. The first essay "Housing Illiquidity, AssetPrices, and the Amplification of Macroeconomic Shocks" studies asset pricing and labor market dynamics when houses are modeled as a component of wealth and a consumption good. The stochastic discount factor depends on the consumption of nondurables and houses that are subject to trading frictions. Housing liquidity frictions give rise to risk over the relative consumption ratio that drives asset prices. I study this idea quantitatively in a model that features a portfolio choice based on liquidity as well as risk. Following a TFP shock, firms post fewer vacancies. Rising unemployment implies more aggregate and individual risk and, therefore, more risk over the relative consumption ratio, which leads to higher discounts and rising unemployment. This parsimonious mechanism accounts for both the responsiveness of individual consumption to unemployment shocks and the countercyclical market price of risk, and is quantitatively important. After calibrating the model to match the salient features of the wealth distribution, I find that risk over the relative consumption ratio amplifies output fluctuations by 18% and unemployment volatility by 200%, while welfare losses are mostly borne by asset-poor households. The second essay \Wealth and Hours" studies the relation between household wealth and their labor supply decisions. In the United States, market hours worked are approximately

at across the wealth distribution. Accounting for this phenomenon is a standing challengefor standard heterogeneous-agent macro models. In these models, wealthier households consume more, enjoy more leisure, and work less. The paper proposes a theory that generates the cross-sectional wealth-hours relation as in the data. This theory is quantifieded in the context of a new general-equilibrium heterogeneous-agent incomplete-markets model with three key features: a quality choice in consumption, non-homothetic preferences, and a multi-sector production structure. As external validation, the paper shows that the model produces expenditure patterns that are consistent with the data, as well as realistic \quality Engel curves." The third essay "Machine Learning Projection Method for Macro-Finance Models" develops a global simulation-based solution method to solve large states space macro-finance models using machine learning. The method uses an artificial neural network (ANN) to approximate the expectations in the optimality conditions in the spirit of the parameterized expectations algorithm (PEA). Because this method can process the entire information set at once, it is easily scalable to handle models with large state spaces that are highly collinear. The paper demonstrates these computational gains in two applications. First, the paper extends the optimal government debt problem studied by Faraglia et al. (2019) to ten maturities and finds that, when borrowing and lending constraints are tight, the optimal policy prescribes an active role for the medium-term maturities. Second, the paper reassesses the resolution of the international business cycle puzzles in Kehoe and Perri (2002). This paper shows that extending their two-country framework to three countries, namely US Europe and China, can change the risk-sharing properties of the economy significantly.

This dissertation consists of three essays in macroeconomics and firm dynamics. In the first essay, I study the role of ownership structure on firm-level hiring rules by investigating how firms make employment decisions focusing on those who belong to business groups. To do that end, I use the confidential Korean firm-level data and document novel empirical facts about the employment behavior of firms who belong to business groups in Korea, also known as Chaebol, which is significantly different from non-group firms and provide empirical and theoretical explanations for these new facts. I show that these facts are related to the group-level employment policy based on spillover effects and heterogeneous roles by business groups. In the second essay, I use Korean plant-level data in Korea and study productivity slowdown after the Global Financial Crisis of 2007-08. Applying the dynamic Olley/Pake productivity decomposition method, I find that decrease in allocative efficiency among continuing firms accounts for the collapse of productivity growth in the post-crisis period (2010-2015) by about 80$\%$. Another novel empirical finding is that big and the most productive firms contribute to the productivity slowdown the most while their market shares are not adjusted accordingly. Finally, in my last essay, I investigate macroeconomic implications of financial frictions in an economy where a market structure is endogenously determined. To that end, I develop a model of heterogeneous firms that face the linear demand system, generating a distribution of endogenous markups. The model predicts a negative selection effect of misallocation due to financial frictions by allowing unproductive firms to operate when the degree of competition is endogenously determined through the distribution of markups. This suggests an important role of the endogenous market structure in amplifying misallocation effects due to financial frictions.