Thesis (Ph. D.)--University of Washington, 2001. / Vita. Includes bibliographical references (leaves 95-100).

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The focus of my research is dynamic macroeconomics and how the economy responds to changes in government policy. During the last 30 years, the sovereign bond market in emerging economies has grown considerably and many large scale defaults were observed. Existing models of sovereign debt are unable to jointly explain the debt to output ratios and the default frequency in these countries. In the first chapter, to address this puzzle, I propose a standard small open economy model with the addition that the government transits through different political states and these transitions cannot be directly observed by lenders. Moreover, after a default, the government chooses when to renegotiate and it bargains with the lenders over the recovery rate. I show that government reputation and endogenous periods of exclusion and recovery rates play a crucial role in explaining this phenomenon. In the second chapter, I use a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain the increase in transfers to low earnings quintiles and increase in effective tax rates for high earnings quintiles in the U.S. over the past several decades. I conduct a welfare analysis by contrasting the solution from the political mechanism with those from a sequential utilitarian mechanism, as well as mechanisms with commitment. Finally, the third chapter focuses on explaining the dynamics of firms. I ask whether an entry/exit model like that pioneered by Hopenhayn (1992, Econometrica) with a capital accumulation decision and non-convex costs of adjustment can generate size and age dependence like that found in the data. In particular, conditional on age, growth, employment creation and destruction and volatility are decreasing in size. Moreover, conditional on size, growth, employment creation and destruction and volatility are decreasing in age. The main point of this chapter is to demonstrate that a model with no financial frictions parameterized to match the investment regularities of U.S. establishments is able to account for the simultaneous dependence of industry dynamics on size (once we condition on age) and on age (once we condition on size). To explain how the economy responds and conduct welfare analysis either one has to find natural experiments or one has to build computational models and run counterfactual experiments. My research follows the latter strategy. / text

Chapters one and two of the dissertation investigate the effects of political disagreement on macroeconomic outcomes. I introduce a model of governments with heterogeneous preferences over the composition of consumption between private and public goods alternating in power. Unable to commit to future policies, the party in power has incentive not only to shape consumption according to their preferences but also to manipulate the future state faced by successive governments to influence the decisions of future policy makers. Alternating governments give rise to political business cycles; fluctuations in economy-wide variables due to the political system. Political business cycles help explain the divergence in outcomes of economic variables across countries with different levels of political disagreement and political stability. The first chapter adapts a real business cycle model to include political shocks in addition to the productivity shocks. This is motivated by a key puzzle in the business cycle literature: for emerging economies the volatility of consumption is higher than the volatility of output, a feature of the data that is not explained by standard theory. The goal of this chapter is not only to replicate the data but to understand how consumption responds to political shocks differently than shocks to productivity. This model is also able to recreate endogenously the high level of volatility in government expenditure observed in the data. The model can explain up to 29% of the variation in the relative volatility of consumption across countries. Chapter two focuses on a similar model in the presence of debt instead of capital to develop a positive theory for fiscal policy (debt, expenditure, and deficits) over the business cycle to compare to historical observation. I find that political shocks are important to understand observed U.S. data moments. Chapter three investigates the welfare effects of tax-deferred retirement accounts (similar to Traditional IRAs in the US). I find that such accounts increase aggregate welfare as well as increasing economy-wide inequality. I find from an aggregate welfare perspective the optimal contribution limit for IRAs is to not have a contribution limit. / text

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Bernard Lonergan's economic writings have not been fully evaluated by economists although two recent papers by Burley (1989a, 1989b) show that work has begun. The purpose of this dissertation, therefore, is to situate Lonergan's (1944) economics essay, Circulation Analysis, in the history of economic thought of the period as well as to present a Lonerganian cycle model. / Circulation Analysis examines fundamental macrodynamic processes to explain fluctuations. It was written in the early 1940s following a period of controversy and debate that led to the current paradigms of economic dynamics. The two sides of the debate are exemplified by Harrod (1936) and Hayek (1933 (1928), 1939), in particular. The controversy ended with World War II and the emerging hegemony of the Anglo-American approach, which separated macrodynamics into growth theory (long-run supply problems), and stabilization theory (short-run demand problems). / This dissertation argues that this dichotomy is unsatisfactory and proposes Lonergan's pure cycle as an alternative paradigm. Lonergan's pure cycle restores the importance of supply-side dynamics in the short-run, without denying the primacy of demand issues in the analysis of deviations. A Lonerganian approach views demand shocks as essentially monetary, but also contends that the distribution of nominal income can cause shocks, if it is not synchronized with changes in real variables. / In this thesis a Lonerganian model is presented that uses a Kydland-Prescott (1982) type of "time-to-build" technology. The model is subjected to permanent productivity shocks to investment, which explain, with a lag, equilibrium output. The monetary and distributional shocks to demand, which are temporary, can then explain the deviation of actual output from its equilibrium value. The model uses a Beveridge and Nelson (1981) approach, which specifies changes in growth rates of variables as a function of permanent and temporary shocks. The shocks are identified because the model is recursive: first, the productivity shock determines investment and equilibrium output; then, the monetary shock determines prices and sales of consumer goods. Simulation results are presented.

Background: Arthritis affects 53 million U.S. adults, more than two-thirds of whom are younger than age 65. Approximately 1/3 of working-age (18-64 years) U.S adults with arthritis report arthritis-attributable work limitation. Objectives: First, to take a population-based perspective to evaluate the association of arthritis with employment participation among U.S. adults. Next, to examine whether this association differs by sex, age, or other characteristics. Finally, to investigate effects of the Great Recession (December 2007 to June 2009) on employment and to determine if arthritis status moderated its effects. Methods: All three studies were conducted using the National Health Interview Survey (NHIS). The third study also used longitudinal data from the Medical Expenditures Panel Survey (MEPS) linked to NHIS. Results: These manuscripts are under peer-review for publication; limited results are presented: Study 1- Employment participation was always statistically significantly and substantially lower (e.g., >10 percentage points) among adults with arthritis compared with those without arthritis. Study 2- Overall, 20.1 million adults (10.4% [95% CI=10.1-10.8] of the working-age population) reported work disability. Study 3- During the period of the Great Recession, people with arthritis stopped work at higher rates and started work at lower rates than those without arthritis, suggesting at least some differential effect among those with arthritis. Conclusion: This work contributes new knowledge by establishing long-term patterns and benchmark information for employment participation, work disability, transitions, and macro economic effects among adults with and without arthritis in the U.S. A population-based, non-condition-specific approach of this type has not been previously reported.