This dissertation consists of three essays in Macroeconomics. The first essay assesses the impact of offshoring on aggregate productivity and on labour market outcomes by developing a dynamic general equilibrium model in which workers acquire task-specific human capital. The dynamic nature of the model allows for differentiation between short and long run effects. While the welfare effects are unambiguously positive and independent of the skill-content of the offshored and inshored tasks, the distribution of the gains from trade critically depends on the time horizon. Workers with human capital specific to the inshored tasks gain over those performing offshored tasks in the short term. In the long run, the gains from trade are equally distributed among ex-ante identical agents. The model is calibrated to the U.S. economy; welfare gains from increased offshoring are found to be substantial even after taking into account losses in specific human capital for workers in the offshored occupations along the transition path. The second essay integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. Trade liberalization will cause a reallocation of workers both within and across industries, which will affect both types of inequality in a way that is consistent with findings from the empirical literature on trade and inequality. A calibrated version of the model can account for much of the effect of the Canada-U.S. Free Trade Agreement on the Canadian labour market. The final essay incorporates a distortionary tax into the microfoundations of money framework and revisits the optimum quantity of money. An optimal policy may consist of both a positive tax rate and a positive nominal interest rate: if the buyer's surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy combines a sales tax with a money growth rate above that prescribed by the Friedman rule. Monetary, but not fiscal, policy alters the agent's bargaining position, leaving a special role for a deviation from the Friedman rule.

Compared to the previous twenty years, residential investments in the US appear more stable after the mid-1980s. Chapter 2 explores key hypotheses regarding the underlying causes. In particular, it uses estimated DSGE models to examine whether a more responsive interest rate policy stabilizes the housing market by keeping inflation in check. These estimations indeed found a policy that has become more responsive over time. Counter-factual analysis confirms that the change stabilizes inflation as well as nominal interest rate. It does not, however, find the change in policy to have stabilizing effect on real economic activity including housing investment. It finds that smaller TFP shocks make modest contributions, while the biggest contributing factor to the fall in the housing volatility is a reduction in the sensitivity of the investment to demand variations. Chapter 3 constructs a richly specified model for the housing market to examine the empirical relevance of various costs and frictions, including the investment adjustment cost, sticky construction costs, search frictions, and sluggish adjustment of house prices. Using the US national-level quarterly data from 1985 and 2007, we find that the gradual adjustment of house prices is the most important and irreplaceable feature of the model. The key to developing an optimization-based empirical housing model, therefore, is to provide a structural interpretation for the slow adjustment in house prices. Chapter 4 uses US national-level time series of residential investment, price index of new houses, consumption and interest rate to explore whether the US, as a nation, experienced a drop in the price elasticity of supply of new housing. Maximum likelihood estimations with a simple stock-and-flow model found a statistically significant drop of the elasticity from 10 to 2.2, when the quarterly data between 1971 and 2007 are split at 1985. A richer model with mechanisms of gradual adjustment also indicates such a reduction, when existing knowledge about the adjustment parameters is incorporated in the analysis. For the Federal Reserve, an inelastic supply can be a source of concern, because policy-driven demand in housing market is more likely to trigger undesirable swings in prices.

Thesis (Ph. D.)--University of Oregon, 2001. / Typescript. Includes vita and abstract. Includes bibliographical references (leaves 99-102). Also available for download via the World Wide Web; free to University of Oregon users.

Thesis (Ph.D.)--Brown University, 2008. / Thesis advisor : Oded Galor. Vita. Includes bibliographical references (leaves 97-106).

This dissertation contains three chapters in macroeconomics that study the financing and provision of unemployment insurance. The first chapter studies cross-sectional differences in U.S. state provision of unemployment insurance and the distortionary effects of federal unemployment benefit subsidies in a dynamic labor search model. The paper has two main findings. First, differences in the job-separation rate and the job-finding rate within the model can generate the negative correlation between the average benefit provided by a state and the state's unemployment rate, as observed in the data. Secondly, the model shows how the federal subsidization of unemployment benefit extensions in high-unemployment states causes an over-provision of the benefit, which in turn increases the unemployment rate in those states. Because the extensions are federally subsidized, however, the welfare loss due to the distortion is offset by the benefits of redistribution between states. The second chapter studies the optimal government monitoring of job search effort by unemployment insurance recipients. The theoretical model is a labor search economy with imperfectly observable search effort. The government observes a signal that is correlated with job search effort and must decide the threshold level of the signal that determines continued UI eligibility. The results of the numerical analysis show that the government increases this threshold level at each duration of the unemployment spell. Further, an increasing threshold profile can generate a sharp increase and subsequent drop-off in search effort near the expiration of benefits as observed in the data. The third chapter studies the optimal mix of distortionary capital and labor taxes in an altruistic economy. This problem is addressed by solving a dynamic general equilibrium model with production, in which finitely-lived individuals are linked inter-generationally through altruistic preferences. The government is tasked with financing an exogenous stream of government spending by levying distortionary capital and labor income taxes in a way that minimizes welfare loss in the economy. The numerical results show that nearly all government revenue should be raised through the labor income tax. / text

This dissertation studies migration and remittances through a macroeconomic framework. In the first chapter, I compare the impact of national and regional borders on the migration decisions of agents. Migration between regions within a country is observed to be higher than migration between countries; moreover, both types of migration respond similarly to differences in economic opportunities. These observations are analyzed with the aid of a symmetric two-country dynamic general equilibrium model with labor mobility. The model is solved using dynamic programming and estimates of the latent cost of crossing borders are obtained through the method of simulated moments. The results show that the mean moving cost associated with crossing an international border is more than twice that of crossing a regional border. One important consequence of this high cost is that the mere presence of a national border decreases aggregate welfare by about 0.15% in terms of annual consumption for countries such as Sweden and Denmark. In the second and third chapters, I analyze how remittances by emigrants to their home countries affect welfare, consumption, savings, investment and the structure of production between traded and non-traded sectors in developing economies. For both these chapters, I solve a macroeconomic model with an endogenous remittance decision. However, while the second chapter considers remittances driven by investment or savings motives, the third chapter considers altruistic remittances. / text

The relationships between competition, innovation, and regulation have long been studied in an attempt to understand and evaluate the effect of regulation on the wealth and growth of nations. Recent empirical work has emerged taking advantage of the still ongoing proliferation of ever more disaggregated data to shed more light on these relationships and at the same time uncover new puzzles in need of explanations. This thesis is an attempt to address the discrepancies between some of these newly discovered phenomena and current theory. In Chapter 1 I introduce an insight of Friedrich Hayek - that competition allows a thousand flowers to bloom, and discovers the best among them - into a conventional model of Schumpeterian innovation. I show how the model can account for two seemingly contradictory empirical phenomena, a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. In Chapter 2 I extend the model to investigate the effects of patent protection on competition and innovation, and to understand the interaction between patent policy and product-market regulation. I calibrate the model to show that patent protection in the U.S. is depressing competition, innovation, growth, and welfare. Using patent and citation data, I further provide empirical evidence supporting the implications of the model. In Chapter 3 I investigate the impact of regulatory entry barriers to new firms on aggregate output and total factor productivity. Following recent work by Thomas J. Holmes and John J. Stevens, I extend a standard model of monopolistic competition to account for the existence of both niche markets and mass markets within industries. Calibrating the model using U.S. manufacturing data, I show this extension goes a long way towards explaining the large gap between empirical estimates of the impact of barriers to entry and the quantitative predictions of current models.

The relationships between competition, innovation, and regulation have long been studied in an attempt to understand and evaluate the effect of regulation on the wealth and growth of nations. Recent empirical work has emerged taking advantage of the still ongoing proliferation of ever more disaggregated data to shed more light on these relationships and at the same time uncover new puzzles in need of explanations. This thesis is an attempt to address the discrepancies between some of these newly discovered phenomena and current theory. In Chapter 1 I introduce an insight of Friedrich Hayek - that competition allows a thousand flowers to bloom, and discovers the best among them - into a conventional model of Schumpeterian innovation. I show how the model can account for two seemingly contradictory empirical phenomena, a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. In Chapter 2 I extend the model to investigate the effects of patent protection on competition and innovation, and to understand the interaction between patent policy and product-market regulation. I calibrate the model to show that patent protection in the U.S. is depressing competition, innovation, growth, and welfare. Using patent and citation data, I further provide empirical evidence supporting the implications of the model. In Chapter 3 I investigate the impact of regulatory entry barriers to new firms on aggregate output and total factor productivity. Following recent work by Thomas J. Holmes and John J. Stevens, I extend a standard model of monopolistic competition to account for the existence of both niche markets and mass markets within industries. Calibrating the model using U.S. manufacturing data, I show this extension goes a long way towards explaining the large gap between empirical estimates of the impact of barriers to entry and the quantitative predictions of current models.

Compared to the previous twenty years, residential investments in the US appear more stable after the mid-1980s. Chapter 2 explores key hypotheses regarding the underlying causes. In particular, it uses estimated DSGE models to examine whether a more responsive interest rate policy stabilizes the housing market by keeping inflation in check. These estimations indeed found a policy that has become more responsive over time. Counter-factual analysis confirms that the change stabilizes inflation as well as nominal interest rate. It does not, however, find the change in policy to have stabilizing effect on real economic activity including housing investment. It finds that smaller TFP shocks make modest contributions, while the biggest contributing factor to the fall in the housing volatility is a reduction in the sensitivity of the investment to demand variations. Chapter 3 constructs a richly specified model for the housing market to examine the empirical relevance of various costs and frictions, including the investment adjustment cost, sticky construction costs, search frictions, and sluggish adjustment of house prices. Using the US national-level quarterly data from 1985 and 2007, we find that the gradual adjustment of house prices is the most important and irreplaceable feature of the model. The key to developing an optimization-based empirical housing model, therefore, is to provide a structural interpretation for the slow adjustment in house prices. Chapter 4 uses US national-level time series of residential investment, price index of new houses, consumption and interest rate to explore whether the US, as a nation, experienced a drop in the price elasticity of supply of new housing. Maximum likelihood estimations with a simple stock-and-flow model found a statistically significant drop of the elasticity from 10 to 2.2, when the quarterly data between 1971 and 2007 are split at 1985. A richer model with mechanisms of gradual adjustment also indicates such a reduction, when existing knowledge about the adjustment parameters is incorporated in the analysis. For the Federal Reserve, an inelastic supply can be a source of concern, because policy-driven demand in housing market is more likely to trigger undesirable swings in prices.

This dissertation offers two perspectives on the making of monetary policy under uncertainty. The first two chapters examine the consequences of uncertainty for the macroeconomic function of the central bank - the stabilisation of macroeconomic variables of interest around socially desirable targets. The third chapter examines the consequences of uncertainty for the central bank's microeconomic function - the public supply of liquidity. The first chapter asks whether society benefits from the delegation of monetary policy to cautious and conservative central bankers. We offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences. First, caution improves credibility but does not obviate the need for central-bank conservatism. Second, previous models of delegation have focused on suboptimal forms of conservatism. We derive optimal concepts of conservatism that mitigate, or eliminate, any residual problem of credibility. Third, we rationalize why credible monetary policy may be conducive to stable inflation and output. The second chapter examines the implications of instrument uncertainty for optimal monetary policy following the introduction of non-quadratic preferences. We investigate both symmetric and asymmetric preferences and discuss the consequences for caution, gradualism and the optimal delegation of monetary policy. The third chapter examines the microeconomic role of the central bank. We develop a rationale for the provision of public liquidity based on an incomplete contracting framework. The model illustrates to what extent wealth-constrained entrepreneurs are leveraged by collateralized debt contracts and examines the consequences of costly collateral liquidation and aggregate asset price uncertainty for the provision of external finance.