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Essays on macroeconomics: Macroeconomic policy and economic performance.

McMahon, Michael Francis (2009) Essays on macroeconomics: Macroeconomic policy and economic performance. PhD thesis, London School of Economics and Political Science (United Kingdom).

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Abstract

This thesis discusses the three issues that are important to macroeconomic policymakers. First, I examine the role of inventories over the business cycle. Despite accounting for less that 1% of the level of GDP, inventory changes have made up almost 50% of the post-war volatility of US GDP growth, and yet most models of the business cycle exclude inventories. I develop a dynamic business cycle model that incorporates distribution inventories as well as simple storage inventories. I find that the behaviour of inventories in this model matches the aggregate data well. However, there is little evidence that improved inventory management contributed to the decline in macroeconomic volatility over the last quarter of a century. Second, the optimal design of a monetary policy committee (MPC) is examined as to whether such committees should include a mix of members from outside (external) as well as inside central banks (internal). Using a new theoretical model of voting behaviour on a mixed committee, it is shown that, under certain circumstance and behaviour, the presence of external committee members may be beneficial. However, using the voting record of the Bank of England's MPC, reveals a problem; there is evidence of an agency problem which may eliminate any benefit to the appointment of external members. These results undermine the current intuition as to why such mixed committees should be employed by policymaking institutions. Finally, I investigate the effect of policy uncertainty on household saving using a quasi-natural experiment from Germany in the late 1990s. Around the 1998 election, there was a marked increase in uncertainty; using the fact that civil servants were largely unaffected by this policy uncertainty, we show that households reacted to the increase in uncertainty by saving more and, where possible, by working more via the margin offered by part-time employment.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Economics, General
Sets: Collections > ProQuest Etheses
Departments > Economics
URI: http://etheses.lse.ac.uk/id/eprint/2346

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