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Zonder onderwerpscode: economie

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Introduction This PhD thesis collects three essays on macroeconomic issues that appear fairly distinct at first sight. All three essays nevertheless build upon the same set of modelling principles: optimising behaviour on the part of rational economic agents (firms, households and policy makers), intertemporal linkages, sticky prices, a general equilibrium perspective. These modelling principles have collectively become known as the dynamic stochastic general equilibrium (DSGE) framework. It is fair to say that this framework has by now become the standard way of doing macroeconomics. There are several reasons for its success. First, optimisation by rational agents imposes discipline on the kind of behaviour predicted by the model. Although the rational expectations assumption has been criticised since its early days, it guarantees that the model is internally consistent and thereby reduces the modeller's degrees of freedom in specifying agents' information sets. Moreover, it is uncontested as a benchmark even in those research fields that use other expectations formation mechanisms. The utility maximisation criterion is useful for characterising optimal decision rules of agents. Second, the general equilibrium perspective is indispensible if we want to analyse the macroeconomy as a whole. A lot of interesting economic action lies in the spillovers from one market to another. Third, the intertemporal linkages in the model are meant to capture the dynamics of real world macroeconomic time series. Finally, price stickiness is needed for monetary policy to be of any relevance. Despite its many advantages, the DSGE framework still is - without a doubt - work in progress and I try to take a critical attitude towards it. I hope that my results highlight some of its shortcomings as well as its strong points. The first two chapters of this thesis confront a DSGE model with the data. This exercise serves two purposes. On the one hand, taking the model as given, we can interpret economic developments through the lens of the model (see Chapter 1). On the other hand, certain model predictions can be tested against the data, this being a model selection device (see Chapter 2). Chapters 1 and 2 of the thesis are positive essays. Here, policies are either exogenous or follow simple mechanical rules. Chapter 3, by contrast, is normative and derives optimal monetary and fiscal policies on the basis of the utility maximisation criterion. A benevolent planner sets policy in such a way as to maximise household utility, taking the actions of the households and firms, who are in turn maximising utility and profits, as given. Outline In the following, I give an outline of the three essays. In Chapter 1, Productivity and the euro-dollar real exchange rate, I start from the conjecture that productivity differentials between the United States and the euro area were responsible for the US dollar's prolonged real appreciation in the 1990s. First, I derive impulse responses from a two-country, two-sector DSGE model. Second, I use these as sign restrictions to identify a structural vector autoregression (VAR). My results show that the Balassa--Samuelson effect, through traded sector productivity shocks, is far less important in explaining the overall variation in the euro-dollar exchange rate than are demand and nominal shocks. In particular, the strengthening of the US dollar in the late 1990s was mainly demand-driven and cannot be explained by productivity developments. This interpretation hinges on the model-based restrictions that I have imposed on the VAR. More specifically, the model predicts that productivity improvements expand production along the intensive margin. The terms of trade worsen as home prices fall relative to foreign prices, leading to a real depreciation. In other words, the model is consistent with a weakening of the dollar (in real terms), opposite to what we observed. One way of reconciling a rise in productivity with stable or increasing prices is to consider an expansion of production along the extensive margin instead. This works as follows. Higher productivity encourages the entry of firms that introduce new products. This extra output can be sold without lowering prices, as consumers value the increased product diversity. This train of thought takes me to the youngish literature on firm entry in DSGE models. Perhaps surprisingly, while the unconditional moments of firm entry in the US have been documented for some time, the conditional moments of this variable are less well understood. In Chapter 2, Business Cycle Evidence on Firm Entry, I follow an empirical strategy that is similar to the one in Chapter 1, but the focus is different. Here, I use the information provided by my empirical findings to decide which model features are needed to match certain properties of the data. Business cycle models with sticky prices and endogenous firm entry make novel predictions on the transmission of shocks through the extensive margin of investment. I test some of these predictions using a vector autoregression with model-based sign restrictions. I find a positive and significant response of firm entry to expansionary shocks to productivity, aggregate spending, monetary policy and entry costs. The estimated response to a monetary expansion supports the view that entry costs do not fluctuate much over the cycle. Insofar as firm startups require labour services, wage stickiness is needed to make the signs of the model responses consistent with the estimated ones. The shapes of the empirical responses suggest that congestion effects in entry make it harder for new firms to survive when the number of startups rises. To conclude, my VAR results can be useful in ruling out certain combinations of model features that generate "wrong" dynamic responses. While Chapter 2 aims at improving our understanding of the behaviour of entry over the business cycle, Chapter 3 turns to the implications of firm entry for policy. Chapter 3 is an analytical contribution and has the title Optimal fiscal and monetary policy responses to firm entry. It asks whether fiscal and monetary policies should be concerned with (and thus should spend resources on measuring) firm/product entry and exit. Previous research has found that monetary policy should stabilise product prices and should not respond to fluctuations in the consumer price index coming from product turnover (see Bergin and Corsetti (2006), Bilbiie et al (2007)). I analyse this issue in the framework of a stylised DSGE model with two sectors, one producing firms and the other producing consumption goods. Product and labour markets are monopolistically competitive; wages are predetermined; consumption purchases are subject to a cash-in-advance restriction. In order to ensure an efficient steady state allocation, the policy maker needs to set a labour income subsidy which aligns the markup on leisure with that on consumption goods. The optimal monetary policy sets the net interest rate equal to zero. Under preset wages, the policy maker can, in general, achieve a higher welfare level than in the flexible-wage economy by manipulating the sectoral composition of production.