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Essays on macroeconomics

He, Chao (2019) Essays on macroeconomics. PhD thesis, London School of Economics and Political Science.

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This thesis comprises three chapters on macroeconomics. Chapter 1 studies a paradox of precaution in international saving. In partial equilibrium, a small open economy that accumulates savings during good times can mitigate consumption falls during bad times. This chapter shows that, in general equilibrium, the opposite may be true if the amount of savings is large enough. More savings require more borrowing and higher leverage in the rest of the world, making it more prone to a financial crisis. Crises in the rest of the world then feed back to the saving economies and destabilize them. If the saving economies are collectively large but individually small, their national policymakers will not fully internalize the negative general equilibrium effect. Thus, in equilibrium, there will be excessive global imbalances and excessive volatility for the savers themselves. Chapter 2 studies consumption-led growth. Investment is bounded by retained earnings for young firms relying on self-financing. The firms are underinvesting from the perspective of a constrained social planner who cannot inject funds to the self-financing firms directly, for two reasons. First, households do not internalize that additional consumption and labor supply increases the profits of the self-financing firms. Second, firms with credit access do not internalize that their expansion fueled by credit intensifies competition in the factor market, drives up factor prices, and squeezes the profits of self-financing firms. The social planner optimally chooses “pro-consumption” policies such as a consumption subsidy and a saving tax on the household to increase the consumption demand and the cost of credit. More consumption paradoxically leads to more investment and output for the self-financing firms. Chapter 3 studies population aging with automation. This chapter develops a dynamic model that combines demographic transitions, as in Gertler (1999), with endogenous automation. Following Acemoglu and Restrepo (2018b), automation is modeled as the active replacement of labor with capital at the task level in response to a rise in the relative cost of labor to capital, leading to an endogenous increase in the capital share of output. It finds that allowing automation to react endogenously to demographic and productivity changes generates quantitatively relevant effects compared with the standard baseline where firms cannot respond through the automation margin.

Item Type: Thesis (PhD)
Additional Information: © 2019 Chao He
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Departments > Economics
Supervisor: Reis, Ricardo and Jin, Keyu and Benigno, Gianluca

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