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This dissertation explores the effect of tax news on national and state-level economic activity. In the first chapter, I explore the effect of tax news on state economic activity. I estimate a factor-augmented vector autoregression (FAVAR) model, which allows us to consider the possibility that unobserved regional factors --such as credit and fiscal conditions-- might be relevant for modelling the dynamic response of aggregate and state-level economic activity. Tax news is identified as a shock to the implicit tax rate, measured by the yield spread between the one year tax-exempt municipal bond and the one-year taxable Treasury bond. My results suggest that an increase in the implicit tax rate raises national output over much of the anticipation period. In addition, anticipated tax increases give rise to expansions in state personal income and employment. I find that the variation in the responsiveness of economic activity across states is mostly explained by differences in industrial composition as well as by some demographic characteristics such as education attainment and median age. In the second chapter, I examine the impact and transmission of the effect of tax news on U.S. economic activity. I find that news related to higher federal income taxes raise the real GDP over the anticipation period. In addition, aggregate and disaggregate industrial production, employment per worker, hours worked per worker and capacity utilization rate respond positively to tax news in the short run. An historical decomposition shows that tax news and federal funds rate shocks have been the main source of fluctuations in real GDP. In particular, tax news associated with legislation in 1986, 1993, and 2001 contributed to the movements in the real GDP. In the third chapter, I investigate whether the effect of tax news shocks differs across periods of recession and expansion. I follow Jorda’s (2005) local projection method to estimate tax news effects on the economy. I find that news about future tax cuts reduces economic activity for about four quarters and has a significant effect on the U.S. economy in the short run. The behavior of output following tax news shocks is similar in both recession and expansion phases of the business cycle and indicates that news about future tax cuts are contractionary. However, the rebound in economic activity four quarters after the news shock is higher in the recessionary phase than in the expansionary phase. Finally, the state dependent model shows that news shocks have a stronger positive impact on consumption expenditures and residential investment in the recession phase than in the expansion phase.

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This thesis is a collection of three essays in which the behaviour of unemployment is studied in different dynamic environments. Throughout, unemployment is understood to be involuntary, arising due to the uncoordinated nature of trade in the labour market as viewed from the perspective of the Diamond-Mortensen-Pissarides equilibrium matching model. It goes without saying that the fundamental motivation for pursuing this line of research is provided by the untold consequences, both human and economic, of otherwise capable people remaining involuntarily idle. An attempt, therefore, is made to contribute to the understanding of how various aspects of macroeconomic policy can influence unemployment outcomes. The approach maintained throughout is to combine general equilibrium modelling with simulation techniques in order to provide not only qualitative inferences but also quantitative descriptions of equilibrium dynamics. The dynamic environments considered cover both the business cycle (the first two chapters) and the life cycle (the third chapter). In the first chapter, Structural Tax Reform and the Cyclical Behaviour of the Labour Market, we build a real business cycle model with frictional unemployment and distortionary tax rates which are increasing in individual taxable labour income. The cyclical aspects of tax reform that are addressed in this chapter are distinct from the stationary state distributional issues that have garnered most of the attention in the existing literature on structural tax reform. Estimating the tax code parameters from federal income tax return data for the U.S., we find that a reduction in the progressivity of the tax system is associated with a significant increase in the volatility of hours per worker. The intuition is simply that the greater the extent to which marginal tax rates fluctuate in response to shocks, the smaller the incentive to adjust working hours. But in a frictional labour market in which it is costly for forms to issue vacancies, the behaviour of hours - i.e. intensive adjustment, or adjustment in the intensive margin - is a determining factor of job creation - i.e. extensive adjustment. We then explain how the dynamic behaviour of hours along the adjustment path to an aggregate productivity shock generates o¤setting incentives for job creation, with the result that tax reform has little impact on unemployment fluctuations. The welfare cost of the business cycle is also computed under different tax regimes. It is found that although business cycles are more costly under a flat tax, the overall welfare implications are quantitatively negligible regardless of the tax system. Having described the effects of the tax system on equilibrium dynamics when perturbed by a productivity disturbance, we then consider business cycle adjustment to an aggregate demand shock in the form of fiscal stimulus. In light of recent fiscal developments in the U.S. and Europe, the ability of expansionary fiscal policy to stimulate output has gained renewed interest in the business cycle literature. We contribute to the analysis by assessing whether the efficacy of government expenditure in reducing unemployment depends on the structure of the tax system. It is demonstrated that a less progressive tax policy increases the ability of expansionary fiscal policy to stimulate output due to a larger response in hours, but this comes at the cost of a smaller unemployment multiplier. Tax reform therefore causes a compositional shift in labour market adjustment in response to aggregate demand shocks, with relatively more adjustment occurring in the intensive margin and less adjustment in the extensive margin the flatter the tax schedule is. The reason why this compositional shift occurs for a demand shock but not a supply shock is that the adjustment path of hours is qualitatively dependent on the type of disturbance. In particular, we describe how equilibrium undershooting in hours occurs only in response to an aggregate productivity (supply) shock, whereas the negative wealth effects arising from increased government expenditure exert sustained upward pressure on hours along the entire adjustment path, thus providing a significant incentive for firms to substitute away from job creation. The second chapter, Monetary Policy and Job Creation in a New Keynesian Model, is motivated by the work of Cooley and Quadrini (1999) and Krause and Lubik (2007). These studies indicate that a typical monetary business cycle model with frictional unemployment and endogenous job destruction tends to encounter difficulty in generating a rise in job creation in response to expansionary monetary policy, rendering the model inconsistent with the downward sloping Beveridge curve that appears in the data and implying only a limited policy role for inflationary job creation. Matching frictions in the labour market congest the job creation process so that firms tend to skew adjustment to shocks towards the job destruction margin. In recognition of the assertion put forth but unpursued by Cooley and Quadrini (1999) that fluctuations in the size of the labour force may ease labour market congestion and therefore amplify cyclical job creation, in Chapter II we extend a New Keynesian model with unemployment to feature an endogenous labour market participation decision. However, a baseline model with a standard degree of risk aversion tends to exhibit countercyclical labour force participation, which is inconsistent with the data. In order to address this issue, we propose the notion of labour market participation as a social consideration, which we demonstrate to be capable of generating procyclical participation incentives. The basic idea is that agents will tend not to exit the labour force during booms in order to "keep up with the Joneses". We then find that plausible fluctuations in the size of the labour force do not exert a quantitatively significant effect on job creation. In light of this result, we search for alternative mechanisms which may overturn the conclusion that inflationary policy is incapable of incentivising job creation. The approach taken involves switching focus to the characteristics of aggregate demand dynamics along the adjustment path to a monetary shock. It is well known that standard New Keynesian models fail to deliver the gradual, hump-shaped adjustment path to monetary policy shocks that is observed in the data. We argue that if aggregate demand experiences a persistent increase in response to a monetary shock instead of peaking on impact, the incentive for firms to create jobs becomes amplified. The intuition is that, since the job creation decision is forward-looking due to the presence of matching frictions, aggregate demand must rise persistently even after the shock takes place so that firms anticipate a further increase in aggregate demand in order for the time consuming process of issuing a vacancy to be justified. To demonstrate this, it is shown that, by altering the dynamics of aggregate demand, time-inseparability in the utility function can significantly improve the ability of expansionary monetary policy to increase job creation, allowing the model to generate a downward sloping Beveridge curve conditional on monetary shocks. In the appendix to Chapter II, we lend further credence to this hypothesis by describing how the manner in which monetary policy it- self is specified may give rise to hump-shaped adjustment dynamics and, consequently, amplify inflationary job creation. Finally, in Chapter III on Equilibrium Matching and Age Discrimination Policy, we abstract from business cycle issues and concentrate instead on the life cycle. Federal legislation prohibiting the discrimination of workers on the basis of age has been in place in the United States since the 1967 Age Discrimination in Employment Act.

Background: Economic and Business cycle indicators are used when predicting a country’s Gross Domestic Products, GDP. During recent time, Purchasing Managers Index and its ability to signal changes in the economy have received attention. It provides inconsistent signals since the financial crisis in 2008. Decision makers in the society rely on macroeconomic forecast when implementing strategic decisions. It is therefore necessary for indicators to provide correct signals in relation to GDP. Previous research about indicators’ stability is mostly conducted in the U.S. According to the authors’ knowledge, scarce research has been made in Sweden. The area lacks observations where a wider range of indicators is included to get a broader perspective of the economy. Purpose: The purpose of this study is to examine Swedish indicators and observe if they are stable and provide accurate, reliable and consistent signals in relation to GDP growth. Furthermore, the financial crisis in 2008 is used as a benchmark when observing stability and indicators’ predictive ability. Method: Ten indicators within the categories financial, survey-based and real economy indicators are selected. Quarterly data with a time period of maximum 1993-2013 are analyzed. The statistical tests conducted include Correlation, Cross-Correlation and Simple Linear Regression, an interaction term is also included to account for the financial crisis. Conclusion: The results show that nine out of ten indicators are unstable. Purchasing Managers Index show largest changes compared to other indicators. Industry Production index is the best performing indicator. When it comes to the categories; survey-based, financial and real-economy indicators, no category overall provide stability.

Univ., Diss.--Bonn, 2006.

This dissertation consists of three chapters. In the first chapter, we study the role of financial frictions on the demand side of the economy. In particular, we study the interaction between firm and household credit constraints over the business cycle. We construct a real business cycle model with explicit modeling of price and quantity side of housing. This allows us to include both firm and household financing frictions. The model is estimated for the U.S economy using quarterly data on key macroeconomic variables over the period 1970 - 2006. Household and firm financial accelerators operate primarily through movement in house and capital prices respectively. We find clear evidence of the operation of a financial accelerator mechanism, whereby shocks to the economy are amplified most in the presence of both types of frictions, as opposed to just firm or household frictions. Over the business cycle, total factor productivity shocks in the non-housing sector explain about half of the volatility of GDP and consumption. However, cyclical variations in housing investment and housing prices are predominantly explained by housing preference and housing technology shocks. Finally, spillovers from household financing frictions are mostly concentrated in consumption. However, they also affect business investment via its impact on the demand for capital and consequently its price. The second chapter focuses on financial frictions on the supply side. We study the role of bank capital in the transmission of shocks to the economy. Given the evolutionary change in the financial services industry and the growth of shadow banking in the decades prior to the global recession, we characterize credit intermediation with a heterogeneous banking sector comprised of traditional retail and shadow banking. We approach the shadow banking system from a regulation perspective wherein commercial banks have incentives to transfer loans from on- to off-balance sheet to gain regulatory relief. Since bank capital is costly, banks cover part of their funding needs by loan sale in the secondary market. Furthermore, these transferred loans are bundled together and converted into liquid asset backed securities. Commercial banks’ effective return is subject to their monitoring effort, which is unobservable and hence introduces a moral hazard problem in loan sale. This limits the amount of loan sold in the secondary market. We find that loan sale and securitization enhances credit intermediation in normal times and improves the resilience of the system to productivity shocks. However, it also exposes the economy to shocks emerging in the financial system. In response to financial market shocks, the government via its backstop program, can ameliorate its impact on the economy. Finally, we compare the model economy with Basel I and Basel II capital requirement and find that business cycle fluctuations are amplified under Basel II regime. Furthermore, in response to a negative productivity shock there is a transfer of loans from on to off balance sheet under Basel II rules with procyclical capital constraints. This points towards a need for countercyclical capital requirement as being implemented under Basel III accord. In the third chapter, we focus on the question of trade off between price and financial stability goals for the conduct of monetary policy. The recent crisis has generated renewed interest in Hayekian theory and Minsky’s instability hypothesis, which claims that accommodative monetary policy can be harmful for an economy by promoting excessive risk taking – the so called risk taking channel of monetary policy transmission. Risk Taking Channel has been documented for the U.S and Euro area and we investigate the presence of this in Asia. Using annual and quarterly data on publicly listed banks in Asia, we find that when interest rates are too low - lower than a benchmark - bank risk increases. Furthermore, there is also a case for greater supervision and capital stringency to alleviate risk taking.

Abstract This thesis investigates whether stock returns can help forecast macroeconomic activity. Future earnings and dividends and current stock prices should contain information about the future state of firms and the consumption possibilities of consumers. These activities are linked to aggregate economic development and, hence, the stock markets should improve economic forecasting. We review the theoretical points that justify the importance of stock markets in economic forecasting. Recent literature on the stochastic discount factor in asset pricing and the real business cycle models has approached this connection. We try to show that the direction between financial markets and macroeconomy could be from stock markets to real economy. We empirically test the forecasting ability of stock markets with respect to macroeconomy. The unexpected part of stock return can be revealed with economic tracking portfolios (ETP), which are constructed so that the unexpected portion of the portfolio return has the maximum correlation with revisions to expectations of the target variable. ETP's track how investors revise their expectations about relevant macroeconomic variables. The results show that specific stock portfolios track future changes in macroeconomic variables well. In the previous literature, stock returns have been connected to the business cycle. This connection is analysed by explaining stock returns with total factor productivity (TFP) as a factor. TFP is measured by corporate innovation variable, i.e. the change in a firm's gross profit margin unexplained by changes in firm's capital and labour. The TFP variable performs quite nicely in explaining stock returns and it can be related to stock market momentum. Next, the aim is to investigate the forecasting power of stock returns together with the TFP factor. Even though in our results the TFP contains no information relevant for economic forecasting, the stock returns continue to perform well.

The aim of this diploma thesis is to verify a connection between macroeconomic development and energy sector. This connection is examined with the data from the Czech Republic and with the data from Austria, both in the years 2000 - 2012. The theoretical part describes energetics as a natural monopoly and a resource of externalities. It includes the theory of monitoring the business cycle and financial analysis of companies. The first half of the practical part compares macroeconomic development of the Czech Republic and the ČEZ group. The similar comparison is made with Austria and the Verbund company. Second half of the practical part explains how economic policies influence the Czech energetics. This impact is being studied in terms of legislation, regulations, monetary and fiscal policy. The practical part ends with rating and valuation of costs that arise from the main energy resources. The link between energetics and macroeconomic development was discovered and proved thanks to the doubled analysis used in the thesis.

The most important aim of the thesis is to find out how strong was the impact of the German economic development on the Czech economy from 1993 to 2005, through what kind of linkages could have been such an impact effective, and what are the future prospects in this field.