Schelkle, Thomas
(2012)
Topics in macroeconomics: mortgage default, demographic change and factor misallocation.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis analyzes three topics in macroeconomics: Mortgage default, demographic change and factor misallocation.
The first chapter asks which theories of mortgage default are quantitatively consistent with observations during the U.S. mortgage crisis. Different default models are simulated for the path of observed house prices and their predictions are compared to observed default rates. The double-trigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment explains this data well. A structural partial-equilibrium model with liquidity constraints and unemployment risk provides micro-foundations for this hypothesis. The model implies that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders.
The second chapter investigates the macroeconomic effects of population aging in the United States during the coming decades. In particular we analyze the role of endogenous human capital formation during this process. We build a large-scale overlapping
generations model with endogenous human capital accumulation and calibrate it such that it replicates observed life-cycle earnings profiles. We then simulate a realistic demographic transition. Our key finding is that human capital adjustments may act as a
quantitatively important mitigation mechanism that dampens the macroeconomic and adverse welfare effects of demographic change.
The third chapter estimates the degree of capital and labor misallocation between the agricultural and non-agricultural sector in different countries. The framework employs the flexible Translog production function and performs non-linear regressions on crosscountry panel data observed during 1967-1992. The findings are that in developing countries marginal products of labor are higher in non-agriculture than in agriculture. The reverse holds for capital allocation. Industrialized countries are closer to an efficient factor allocation. A sensitivity analysis reveals that using Cobb-Douglas production functions leads to much higher estimates of misallocation.
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