Essays on macroeconomics

Abstract

This dissertation consists of three essays on two topics in macroeconomics. The first essay focuses on the monetary policy implications in an aging society. The second and third essays revisit the famous Shimer puzzle in a theoretical and an empirical framework in a different perspective. The first essay shows the impact of aging on effectiveness of monetary policy. To do so, it introduces an OLG-DNK framework where the demand side is represented by a two period overlapping generations setup and the supply side of the economy follows a New Keynesian framework. The model enables the study of the interaction of monetary policy with demographics in a coherent general equilibrium model. The main finding is that this merger of two basic strands of the macroeconomics literature implies monetary policy should be expected to be less effective as societies age since the interest rate sensitivity of real economic activity declines as the population ages. The second essay studies the effect of employment-to-employment ows in a New Keynesian model with labor market frictions. Although New Keyne sian models with labor market frictions found an increase in unemployment and a decrease in labor market tightness in response to a positive technology shock (which appears to be in line with the recent empirical findings), the volatilities of these variables are not as high as their empirical counterparts. In that regard, we assume two types of firms which offer different wage levels, thereby incentivizing low-paid agents to search on-the-job. Differently from the literature, the main source of wage dispersion is the assumption of different bargaining powers of firms. The proposed model generates a higher volatility of unemployment and labor market tightness in response to a positive technology shock compared to the model without on-the-job search. Moreover, it is shown that bargaining power and on-the-job search intensity have an amplifying effect on the unemployment rate. Finally, the last essay is an empirical application of the theoretical model proposed in Chapter 3. This essay revisits the Shimer (2005) puzzle by covering a longer period, 1951-2014, than Shimer's exercise. Firstly, essay shows some stylized facts on U.S. labor market by using raw data and a structural VAR model. Then, the study tests the performance of the model utilized in Chapter 3. The structural VAR models shows that there is a positive correlation between productivity and unemployment and negative correlation between productivity and labor market tightness conditional to technology shock. In addition, I show that the model with on-the-job search component adds more amplification to the standard New Keynesian model with labor market frictions and it is capable of generating both the magnitude and the sign of the fluctuations of labor market variables to productivity shocks.