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Essays in Applied Macroeconomics

Pinder, Jonathan (2017) Essays in Applied Macroeconomics. PhD thesis, The London School of Economics and Political Science (LSE).

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Identification Number: 10.21953/lse.bvaxzjc466ya

Abstract

I present a thesis in three chapters in the broad field of Applied Macroeconomics. The first chapter is an empirical investigation into the “granular hypothesis” - the hypothesis that shocks to extremely large firms can have aggregate economic consequences. Identifying this channel is nontrivial as it may be the case that large firms respond more to aggregate shocks than most firms. I present a new way to identify true firm-level shocks by looking at stock price movements around the times that firms release financial information. I argue such movements reflect firm-specific, rather than aggregate information. Using a measure of firm shocks recovered using this information suggests that the importance of such shocks for aggregate economic outcomes has been overestimated by previous work in the literature. A good univariate representation of US GDP is a random walk with drift. The second chapter shows that nonetheless US recessions have been associated with predictable short-term recoveries with relatively small changes in long-term GDP forecasts. To detect these predictable changes, it is important to use a multivariate time series model. We discuss reasons why univariate representations can miss key characteristics of the underlying variable such as predictability, especially during recessions. The third chapter develops a general equilibrium model to investigate the macroeconomic consequences of liquidity regulation, a form of regulation which was strengthened substantially after the 2008 financial crisis. The model is used to identify two separate channels through which liquidity regulation can affect the cost of capital: the “crowding out” and “financial repression” channels. In the absence of these, I establish a neutrality result in which liquidity regulation does not affect the wider economy. The principal policy implication of this chapter is that regulators should not count safe assets which they require banks to hold for liquidity purposes against bank capital requirements.

Item Type: Thesis (PhD)
Additional Information: © 2017 Jonathan Pinder
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Supervisor: den Haan, Wouter
URI: http://etheses.lse.ac.uk/id/eprint/3672

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