Thesis advisor: Fabio Ghironi / This thesis studies the role of product and labor market frictions for the propagation of shocks in closed and open economy. The first chapters focuses on the consequences of relaxing product and labor regulation for macroeconomic outcomes. Specifically, we study long and short to medium run effects of deregulation by developing a Dynamic Stochastic General Equilibrium model featuring endogenous producer entry and search and matching frictions in the labor market. We calibrate the model to reproduce salient features of countries belonging to the Euro Area which are characterized by large barriers to entry, firing restrictions and unemployment benefits. We analyze the effects of single policy changes and a global reform in which product and labor market regulations are set at the current U.S. level. Three main results emerge. First, we show that deregulation -- either partial or global - would trigger adjustment costs in the short run, increasing unemployment and reducing consumption. Long run welfare gains would make up for short run costs. Second, reforms are interdependent as the effects of a policy change in one market depend upon the level of regulation prevailing in the other. Third, regulation has important consequences for the business cycle properties of the economy. After a full deregulation, the Euro Area would become more responsive to exogenous disturbances but the absorption of shocks would be quicker. Our findings suggest that concerns about the negative effect of strict regulation for the speed of recovery from downturns could be well placed. The second chapter studies how country-specific labor market frictions -- hiring and firing restrictions and protection of unemployed workers -- affect the consequences of trade integration. We address this question in a two-country model of trade and macroeconomic dynamics with heterogeneous firms, endogenous producer entry, and search and matching frictions in the labor market. We study the dynamic effects of trade integration on unemployment and economic activity and the business cycle implications of stronger trade linkages. The model introduces a novel source of amplification and propagation of domestic and international shocks, as fluctuations in job creation and destruction affect the profitability of producer entry into domestic and export markets. Structural differences in labor markets translate into asymmetric entry and export dynamics across countries. As trade barriers are reduced, unemployment initially rises (falls) in countries with more rigid (flexible) labor markets. In the long run, average productivity gains ensure positive employment effects in both countries. Trade is always beneficial for welfare, but the economy with a rigid labor market gains less. Integration has also important business cycle consequences. In contrast to benchmark international real business cycle models, but consistent with the data, the model predicts that trade integration leads to increased business cycle synchronization. Volatility increases in the country with a rigid labor market, but it falls for the flexible partner. / Thesis (PhD) — Boston College, 2010. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.
| Identifer | oai:union.ndltd.org:BOSTON/oai:dlib.bc.edu:bc-ir_101843 |
| Date | January 2010 |
| Creators | Cacciatore, Matteo |
| Publisher | Boston College |
| Source Sets | Boston College |
| Language | English |
| Detected Language | English |
| Type | Text, thesis |
| Format | electronic, application/pdf |
| Rights | Copyright is held by the author, with all rights reserved, unless otherwise noted. |
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