This thesis presents three essays, which each address a salient recent pattern in the British labour market. The first essay concerns whether or not men and women experience the business cycle differently, through their labour market outcomes, and why this might be the case. The second essay seeks to explain the cyclical amplification of unemployment duration, in particular the substantial and persistent increase in UK long-term unemployment observed during and since the Great Recession. The final essay studies recent changes in British wage inequality. To shed light on the possible factors driving these changes, it asks simply whether they are mostly determined by increasing or decreasing wage dispersion within or between firms. Gender and the business cycle: an analysis of labour markets in the US and UK Starting from an improved understanding of the relationship between gender labour market stocks and the business cycle, we analyse the contributing role of flows in the US and UK. Focusing on the post-2008 recession period, the subsequent greater rise in male unemployment can mostly be explained by a less cyclical response of flows between employment and unemployment for women, especially the entry into unemployment. Across gender and country, the inactivity rate is generally not sensitive to the state of the economy. However, a flows based analysis reveals a greater importance of the participation margin over the cycle. Changes in the rates of flow between unemployment and inactivity can each account for around 0.8-1.1 percentage points of the rise in US male and female unemployment rates during the latest downturn. For the UK, although the participation flow to unemployment similarly contributed to the increase of the female unemployment rate, this was not the case for men. The countercyclical flow rate from inactivity to employment was also more significant for women, especially in the US, where it accounted for approximately all of the fall in employment, compared with only forty percent for men. Long-term unemployment and the Great Recession: evidence from UK stocks and flows Although modest by historical standards, long-term unemployment nonetheless more than doubled during the UK’s Great Recession. Only a small fraction of this persistent increase can be accounted for by the changing composition of unemployment across personal and work history characteristics. Through extending a well-known stocks-flows decomposition of labour market fluctuations, the cyclical behaviour of participation flows can account for over two-thirds of the high level of long-term unemployment following the financial crisis, especially the procyclical flow from unemployment to inactivity. The pattern of these flows and their changing composition suggest a general shift in the labour force attachment of the unemployed during the downturn. Recent changes in British wage inequality: evidence from firms and occupations Using a linked employer-employee dataset, we study the increasing trend in British wage inequality over the past two decades. The dispersion of wages within firms accounts for the majority of changes to wage variance. Approximately all of the contribution to inequality dynamics from firm-specific factors are absorbed by controlling for the changing occupational content of wages. The modest trend in between-firm wage inequality is explained by a combination of changes in between-occupation inequality and the occupational composition of firms and employment. These results are robust to using weekly, hourly or annual measures of employee pay.

Thesis advisor: Peter Ireland / We study historical hedge fund performance characteristics with a particular focus on the 2007 – 2009 Financial Crisis (the “Crisis”). Using the Credit Suisse Hedge Fund Indexes as proxies for broader hedge fund industry performance, we apply a factor model based on common investment strategies to determine if the broad industry or any particular hedge fund strategies have been able to deliver excess returns, or alpha. We find evidence that the broad hedge fund index did deliver statistically significant excess monthly returns of 0.39% (4.67% annualized) over the period January 1995 – January 2016, with seven of ten individual strategy indexes contributing. However, our results indicate that these excess returns were delivered primarily during the pre-Crisis period of January 1995 – November 2007. Over this period, the broad index delivered statistically significant monthly excess returns of 0.49% (5.93% annualized), with six of ten individual strategy indexes contributing. Our results do not indicate, however, that hedge funds delivered statistically significant monthly excess returns over the period December 2007 – June 2009 or over the period December 2007 – December 2012, which takes into account the uniquely drawn out recovery from the Crisis. We find that the broad index delivered statistically significant excess monthly returns of 0.23% (2.74% annualized) during the post-Crisis period, though these returns are less than half of the pre-Crisis period returns and only three individual strategy indexes contributed. We posit that this apparent shift in performance characteristics might be the result of a shift in the risk tolerances of hedge fund investors and managers following the Crisis. We conclude that, while hedge funds might certainly serve legitimate purposes in financial markets, they are not immune to financial crises, especially those as severe as the Crisis. / Thesis (BA) — Boston College, 2016. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Arts and Sciences Honors Program. / Discipline: Economics.

With the introduction of welfare reform in 1996 – the culmination of Bill Clinton's campaign promise to 'end welfare as we know it' – means-tested cash assistance became conditional upon participation in the labor market. The current welfare program Temporary Assistance to Needy Families (TANF) is dependent on recipients being able to find work, typically in the low-wage service sector. In addition, this reform handed the states considerable autonomy in TANF's implementation and administration. The literature, citing increased caseworker discretion and state-level policies, has also shown substantial evidence of favorable treatment toward white recipients (e.g. less sanctioning) compared with that of blacks and Hispanics. Using the National Longitudinal Survey of Youth-1997 cohort, this study examines the impact of TANF before and during the Great Recession of 2008 by comparing socioeconomic outcomes among TANF recipients and similarly situated 'non-entrants' with an added focus on racial disparities in these outcome measures. Also, the role of state-level policy context is explored by assessing employment, income, and healthcare coverage outcomes among white, black, and Hispanic recipients living in states whose TANF policies are comparatively strict. Main findings include a significantly negative relationship between TANF participation and socioeconomic outcomes when controlling for relevant factors. No evidence was found, however, linking state TANF policy strictness with decreased socioeconomic outcomes among program participants. / Ph. D.

Thesis advisor: Robert Murphy / A study of recent inflation dynamics in the G-7, this paper discusses a problem with the Phillips curve which arose during the Great Recession (2008-2011). We find that work with time-varying slope, expectation anchoring, and core inflation can correct for the under-predictions that develop in the Phillips Curve during the recession, improving its accuracy throughout the G-7. / Thesis (BA) — Boston College, 2012. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

This thesis investigates the effect that variation in employment between industries has had on the depth of recession faced by Metropolitan Statistical Areas (MSAs) in the United States. This analysis is limited to the previous two national recessions. I use regression analysis to find that increases in variation in employment has a significant effect on the maximum increase in unemployment rate in MSAs after controlling for relevant MSA characteristics. In this framework I also find that increases in education could mitigate the negative effects of this variation. I include several other measures of depth of recession including the fall in economic conditions and length for real GDP to recover to its pre-recession levels. I find that the measure of variation is significant in explaining falls in the economic conditions, but not so in explaining the length it takes for each MSA to recover its real GDP.

This dissertation consists of three essays on firm-level frictions and their aggregate implications. The first two chapters show that inter-firm lending plays an important role in business cycle fluctuations. In Chapter I, I theoretically investigate the role of supplier credit relationships in propagating and amplifying small shocks using a stylized model of inter-firm trade and lending. I build a network model of the economy in which trade in intermediate goods is financed by supplier credit. In the model, a financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms then transmit financial shocks across firms, amplifying their effects on aggregate output. In Chapter II, I embed this mechanism into a more general macroeconomic framework to study empirically the role that inter-firm credit plays in the business cycle. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. I find that the credit network of the US accounts for 22 percent of the fall in GDP occurring from an aggregate financial shock. Finally, I use a structural factor approach to estimate the shocks which affected US industrial production (IP) industries from 1997-2013. I find that most aggregate volatility in IP was driven by aggregate liquidity shocks and idiosyncratic productivity shocks, and that the credit network of IP industries generated 17 percent of observed aggregate volatility. During the recent recession, three-quarters of the drop in aggregate IP was due to an aggregate financial shock. Chapter III presents a theoretical investigation of the long-run relationship between international trade and unemployment. I develop and analyze a static general equilibrium model with labor market frictions and heterogeneous firms in which firms can engage in cross-border hiring by employing labor domestically or from abroad. This chapter outlines the conditions on the model parameters under which unemployment rises or falls after trade liberalization, and demonstrates that models in the literature which ignore cross-border hiring likely underestimate the upward force of trade liberalization on unemployment.

This paper studies the effects of the economic distress that occurred in Swedish municipalities during the financial crisis of 2008 and its effects on social capital. By comparing more exposed municipalities in terms of the decline in employment to less exposed municipalities with a difference-in-difference approach, the aim is to see if the Great Recession had heterogeneous effects on social capital in Sweden. The overall trends in social capital for both groups over the period are positive or stable with a minor plunge during the crisis. However, there are indications of a polarisations concerning trust in other people and in government, where the increase was supressed in more affected municipalities compared to less. For trust in government, it is more educated people and men that drives the negative results while foreign-born saw an increase. The loss in trust in government in the comparison made is more pronounced the more economically distressed the municipality was. Moreover, there seems to be a polarisation in confidence in parliament and satisfaction with democracy, but due to violated parallel trends assumptions it might not be due to the crisis.

The Great Recession dramatically reframed the debate on funding for the arts from a social one to a fiscal one. Instead of social ideology, economics came to the forefront; and fiscal conservatives replaced social conservatives as the loudest voice criticizing government funding for the arts. Under the shadow of an expanding government and staggering national debt, both supporters and critics argue in terms of the economic costs and benefits that the arts impose. These arguments against public funding for the arts are multi-tiered. Critics contend that the government arts agencies are ineffective, that federal arts funding is inefficient, and that government funding as a whole is an unjustified overreach of government. Fiscal conservatives also argue that private philanthropy is sufficient to sustain the arts independently without government involvement. But because public and private funding for the arts respond to recessionary impacts so differently and decreases in private philanthropy impact the arts disproportionately, public arts funding is absolutely justified on an economic basis. With the inclusion of social and political considerations, however, the final conclusion is that neither private nor public funding can or should independently provide a complete solution to the issue.

Thesis advisor: Susanto Basu / The Great Recession is arguably the most important macroeconomic event of the last three decades. Prior to the collapse of national output during 2008 and 2009, the United States experienced a sustained period of good economic outcomes with only two mild and short recessions. In addition to the severity of the recession, several characteristics of this recession signify it as as a unique event in the recent economic history of the United States. Some of these unique features include the following: Large Increase in Uncertainty About the Future: The Great Recession and its subsequent slow recovery have been marked by a large increase in uncertainty about the future. Uncertainty, as measured by the VIX index of implied stock market volatility, peaked at the end of 2008 and has remained volatile over the past few years. Many economists and the financial press believe the large increase in uncertainty may have played a role in the Great Recession and subsequent slow recovery. For example, Kocherlakota (2010) states, ``I've been emphasizing uncertainties in the labor market. More generally, I believe that overall uncertainty is a large drag on the economic recovery.'' In addition, Nobel laureate economist Peter Diamond argues, ``What's critical right now is not the functioning of the labor market, but the limits on the demand for labor coming from the great caution on the side of both consumers and firms because of the great uncertainty of what's going to happen next.'' Zero Bound on Nominal Interest Rates: The Federal Reserve plays a key role in offsetting the negative impact of fluctuations in the economy. During normal times, the central bank typically lowers nominal short-term interest rates in response to declines in inflation and output. Since the end of 2008, however, the Federal Reserve has been unable to lower its nominal policy rate due to the zero lower bound on nominal interest rates. Prior to the Great Recession, the Federal Reserve had not encountered the zero lower bound in the modern post-war period. The zero lower bound represents a significant constraint monetary policy's ability to fully stabilize the economy. Unprecedented Use of Forward Guidance: Even though the Federal Reserve remains constrained by the zero lower bound, the monetary authority can still affect the economy through expectations about future nominal policy rates. By providing agents in the economy with forward guidance on the future path of policy rates, monetary policy can stimulate the economy even when current policy rates remain constrained. Throughout the Great Recession and the subsequent recovery, the Federal Reserve provided the economy with explicit statements about the future path of monetary policy. In particular, the central bank has discussed the timing and macroeconomic conditions necessary to begin raising its nominal policy rate. Using this policy tool, the Federal Reserve continues to respond to the state of the economy at the zero lower bound. Large Fiscal Expansion: During the Great Recession, the United States engaged in a very large program of government spending and tax reductions. The massive fiscal expansion was designed to raise national income and help mitigate the severe economic contraction. A common justification for the fiscal expansion is the reduced capacity of the monetary authority to stimulate the economy at the zero lower bound. Many economists argue that the benefits of increasing government spending are significantly higher when the monetary authority is constrained by the zero lower bound. The goal of this dissertation is to better understand how these various elements contributed to the macroeconomic outcomes during and after the Great Recession. In addition to understanding each of the elements above in isolation, a key component of this analysis focuses on the interaction between the above elements. A key unifying theme between all of the elements is the role in monetary policy. In modern models of the macroeconomy, the monetary authority is crucial in determining how a particular economic mechanism affects the macroeconomy. In the first and second chapters, I show that monetary policy plays a key role in offsetting the negative effects of increased uncertainty about the future. My third chapter highlights how assumptions about monetary policy can change the impact of various shocks and policy interventions. For example, suppose the fiscal authority wants to increase national output by increasing government spending. A key calculation in this situation is the fiscal multiplier, which is dollar increase in national income for each dollar of government spending. I show that fiscal multipliers are dramatically affected by the assumptions about monetary policy even if the monetary authority is constrained by the zero lower bound. The unique nature of the elements discussed above makes analyzing their contribution difficult using standard macroeconomic tools. The most popular method for analyzing dynamic, stochastic general equilibrium models of the macroeconomy relies on linearizing the model around its deterministic steady state and examining the local dynamics around that approximation. However, the nature of the unique elements above make it impossible to fully capture dynamics using local linearization methods. For example, the zero lower bound on nominal interest rates often occurs far from the deterministic steady state of the model. Therefore, linearization around the steady state cannot capture the dynamics associated with the zero lower bound. The overall goal of this dissertation is to use and develop tools in computational macroeconomics to help better understand the Great Recession. Each of the chapters outlined below examine at least one of the topics listed above and its impact in explaining the macroeconomics of the Great Recession. In particular, the essays highlight the role of the monetary authority in generating the observed macroeconomic outcomes over the past several years. Can increased uncertainty about the future cause a contraction in output and its components? In joint work with Susanto Basu, my first chapter examines the role of uncertainty shocks in a one-sector, representative-agent, dynamic, stochastic general-equilibrium model. When prices are flexible, uncertainty shocks are not capable of producing business-cycle comovements among key macroeconomic variables. With countercyclical markups through sticky prices, however, uncertainty shocks can generate fluctuations that are consistent with business cycles. Monetary policy usually plays a key role in offsetting the negative impact of uncertainty shocks. If the central bank is constrained by the zero lower bound, then monetary policy can no longer perform its usual stabilizing function and higher uncertainty has even more negative effects on the economy. We calibrate the size of uncertainty shocks using fluctuations in the VIX and find that increased uncertainty about the future may indeed have played a significant role in worsening the Great Recession, which is consistent with statements by policymakers, economists, and the financial press. In sole-authored work, the second chapter continues to explore the interactions between the zero lower bound and increased uncertainty about the future. From a positive perspective, the essay further shows why increased uncertainty about the future can reduce a central bank's ability to stabilize the economy. The inability to offset contractionary shocks at the zero lower bound endogenously generates downside risk for the economy. This increase in risk induces precautionary saving by households, which causes larger contractions in output and inflation and prolongs the zero lower bound episode. The essay also examines the normative implications of uncertainty and shows how monetary policy can attenuate the negative effects of higher uncertainty. When the economy faces significant uncertainty, optimal monetary policy implies further lowering real rates by committing to a higher price-level target. Under optimal policy, the monetary authority accepts higher inflation risk in the future to minimize downside risk when the economy hits the zero lower bound. In the face of large shocks, raising the central bank's inflation target can attenuate much of the downside risk posed by the zero lower bound. In my third chapter, I examine how assumptions about monetary policy affect the economy at the zero lower bound. Even when current policy rates are zero, I argue that assumptions regarding the future conduct of monetary policy are crucial in determining the effects of real fluctuations at the zero lower bound. Under standard Taylor (1993)-type policy rules, government spending multipliers are large, improvements in technology cause large contractions in output, and structural reforms that decrease firm market power are bad for the economy. However, these policy rules imply that the central bank stops responding to the economy at the zero lower bound. This assumption is inconsistent with recent statements and actions by monetary policymakers. If monetary policy endogenously responds to current economic conditions using expectations about future policy, then spending multipliers are much smaller and increases in technology and firm competitiveness remain expansionary. Thus, the model-implied benefits of higher government spending are highly sensitive to the specification of monetary policy. / Thesis (PhD) — Boston College, 2014. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Déséquilibres macroéconomiques et leur résolution. / Large imbalances in both the US and within the Eurozone preceded the global financial and economic crisis of 2008-2009 (the Great Recession). Ex-post, it seems surprising that not enough attention was given to the fast rise of these imbalances -especially to the development of housing price bubbles- by economists, and even less by policy makers. A long period of relatively low macroeconomic volatility occurring between the mid-1980s to the late 2000s -the so called “Great Moderation”- along with the underestimation of the existence of bubbles in asset prices gave the impression that the large crises of the past were unlikely to reappear. Many economic commentators even saw this as a sign of the decreased relevance of the International Monetary Fund since the global financial stability seemed warranted. The policy of low inflation was viewed by most in the economics profession as more than sufficient to maintain macro stability, and the efficient market hypothesis, developed first by Eugene Fama in the 1970s, dominated the macro-models used in the academia, international organizations, and in central banks (Shiller’s best seller “Irrational Exuberance”was among one of the courageous exceptions). As a result of this inattention, the fast unwinding of these imbalances plunged in 2008-2009 the global economy in an unprecedented crisis -by many measures- since the Great Depression. The recovery from the Great Recession has been slow, with a “double-dip” recession in the Eurozone, and the prospects for a return to sustained high growth still remain uncertain.