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Essays on dynamic macroeconomics

Essays on dynamic macroeconomics
Essays on dynamic macroeconomics
This thesis uses the techniques of macroeconomic theory to answer three questions. It is divided in three chapters each focusing on one of these questions. The first chapter investigates the appropriate labor market policy response to two fundamental changes in the economy. I introduce unemployment benefits financed by a proportional payroll tax within a model of directed search on the job. I show that there exists a unique positive level of unemployment benefit which maximizes welfare of individuals. The optimal unemployment benefit level is hump-shaped as a function of the level of idiosyncratic risk. At empirically relevant levels of idiosyncratic risk, a much less generous system than in the economy without uncertainty emerges. Furthermore, the welfare costs of deviating from the optimal level are substantial, and accompanied by high unemployment rates. I also find that while the optimal generosity of the unemployment insurance system declines monotonically with the amount of aggregate risk in the economy, the welfare costs of deviating from the optimal system are rather small. Chapter two develops a small open economy model with both staggered nominal prices and wages. Then, performances of some alternative simple policy rules are compared by using the welfare loss criterion. It is shown that, firstly, the performance of domestic inflation-targeting or wage inflation-targeting is better than both CPI inflation-targeting and pegged exchange rate. Second, although the performance of simple rules depends on the degree of stickiness in prices and wages, wage inflationtargeting performs better than domestic inflation-targeting for a wide combination of wage and price stickiness. In chapter three, I develop a model with uninsurable capital-income risk and incomplete markets, and investigate the cyclical properties of the equity premium. Although the model abstracts from some common features of the business cycle model, it can generate a sizable and countercyclical equity premium. Moreover, the model generates relatively more volatile consumption, investment, and equity premium than under complete markets
Boostani, Reza
3e674f4d-0222-43ae-8976-3ba18cca75f1
Boostani, Reza
3e674f4d-0222-43ae-8976-3ba18cca75f1
Gervais, Martin
c03b188f-08e2-42a6-abca-b64b362a4065

Boostani, Reza (2011) Essays on dynamic macroeconomics. University of Southampton, Social Sciences, Doctoral Thesis, 90pp.

Record type: Thesis (Doctoral)

Abstract

This thesis uses the techniques of macroeconomic theory to answer three questions. It is divided in three chapters each focusing on one of these questions. The first chapter investigates the appropriate labor market policy response to two fundamental changes in the economy. I introduce unemployment benefits financed by a proportional payroll tax within a model of directed search on the job. I show that there exists a unique positive level of unemployment benefit which maximizes welfare of individuals. The optimal unemployment benefit level is hump-shaped as a function of the level of idiosyncratic risk. At empirically relevant levels of idiosyncratic risk, a much less generous system than in the economy without uncertainty emerges. Furthermore, the welfare costs of deviating from the optimal level are substantial, and accompanied by high unemployment rates. I also find that while the optimal generosity of the unemployment insurance system declines monotonically with the amount of aggregate risk in the economy, the welfare costs of deviating from the optimal system are rather small. Chapter two develops a small open economy model with both staggered nominal prices and wages. Then, performances of some alternative simple policy rules are compared by using the welfare loss criterion. It is shown that, firstly, the performance of domestic inflation-targeting or wage inflation-targeting is better than both CPI inflation-targeting and pegged exchange rate. Second, although the performance of simple rules depends on the degree of stickiness in prices and wages, wage inflationtargeting performs better than domestic inflation-targeting for a wide combination of wage and price stickiness. In chapter three, I develop a model with uninsurable capital-income risk and incomplete markets, and investigate the cyclical properties of the equity premium. Although the model abstracts from some common features of the business cycle model, it can generate a sizable and countercyclical equity premium. Moreover, the model generates relatively more volatile consumption, investment, and equity premium than under complete markets

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Published date: 12 September 2011
Organisations: University of Southampton, Social Sciences

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Local EPrints ID: 208205
URI: https://eprints.soton.ac.uk/id/eprint/208205
PURE UUID: e3080436-fe6b-4fca-8a66-b1b5b5a17d90

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Date deposited: 20 Jan 2012 08:34
Last modified: 18 Jul 2017 10:48

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