Essays on heterogeneity in macroeconomics

Leonardi, Edoardo (2023) Essays on heterogeneity in macroeconomics. PhD thesis, London School of Economics and Political Science.

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Abstract

This PhD thesis delves into the role of household heterogeneity in macroeconomics and its interplay with fiscal and monetary policies. The research is segmented into three papers. The first dissects the earning and spending habits of workers in tradable and non-tradable sectors. Findings indicate that non-tradable sector workers face more earning volatility and have a higher propensity to consume out of unexpected shocks. This behaviour affects economic cycles, particularly in response to sectoral shocks, and the potency of monetary policy. The second paper zooms in on fiscal automatic stabilizers, such as progressive taxes and unemployment benefits, designed to mitigate economic fluctuations. The effectiveness of these stabilizers in reducing the variance of the macroeconomics aggregates varies significantly based on monetary environment, such as domestic inflation targeting versus being in a currency union. While they can stabilize consumption, they inadvertently increase output volatility due to the distortionary effects of taxes. Lastly, the third paper explores how fiscal and monetary policies combined influence household savings. It reveals a balance between policies promoting saving as a safety net and those affecting investment opportunities. Notably, even if policies boost investment, these don’t always lead to more job opportunities, leaving many dependent on wages. In summary, the thesis offers a view of the intricate relationship between fiscal and monetary policies, emphasizing their profound impacts on individuals and the economy when financial markets are incomplete and therefore prevent them from fully insuring against idiosyncratic shocks. Through rigorous models and analyses, it provides valuable insights into crafting more effective and balanced economic strategies for the future.

Item Type:	Thesis (PhD)
Additional Information:	© 2023 Edoardo Leonardi
Library of Congress subject classification:	H Social Sciences > HB Economic Theory
Sets:	Departments > Economics
Supervisor:	Reis, Ricardo
URI:	http://etheses.lse.ac.uk/id/eprint/4546

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