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  • 51.
    Pienaar, Natalie
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Economic Applications of Product Quality Regulation in WTO Trade Agreements2005Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis comprises three theoretical essays on the economic applications of product quality regulation in WTO Agreements:

    Economic Applications of the WTO Consistency Requirement Article 5.5 (consistency) of the SPS Agreement requires countries to avoid arbitrary distinctions in health protection on goods that are associated with the same disease, if such distinctions result in discrimination or a disguised restriction on trade. For a bound tariff, a marginally binding consistency constraint improves welfare but welfare is reduced if the constraint is interpreted too strictly. When tariffs are negotiated subject to consistency, the welfare effects of consistency depend on whether trade negotiators are myopic or forward-looking.

    Public Opinion, Product Quality Regulation and Trade attempts to answer the following questions. Should governments be forced to admit products that science deems healthy, but consumers do not? Are consumer fears sufficient to justify a ban on a healthy import or should the fears refect scientifically proven risk? To what extent can regulatory authorities exploit these fears for protectionist purposes? In an adverse selection model, consumers have imperfect information with regard to government type and import product quality. The government of the country exporting the product of uncertain quality has an incentive to commit to a strategy where it recognises the importing country's right to ban the unhealthy import but tariff retaliates if the importing country bans a healthy import. Under such a strategy first best is achieved; consumers learn product quality and consumption distortions associated with consumer fear are eliminated. Allowing the importing

    Asymmetric Information and Country-of-Origin Labelling concerns information asymmetries as a rationale for trade policy when adverse selection is an international problem. Firms in countries North and South choose between producing high or low quality. Those choosing low quality take advantage of adverse selection problems, while those choosing high quality do so to establish reputations and earn positive profits in subsequent periods when information is perfect. Cross-country differences in the relative costs of producing high quality result in different average qualities and prices in autarky. Trade is welfare deteriorating (improving) for the North (South). Allowing the Northern government the option of origin-labelling eliminates the international externalities associated with trade when adverse selection is a transnational problem, and is unambiguously welfare improving for the North.

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  • 52.
    Prado, Jr., Jose Mauricio
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Public Macroeconomic Policy2007Doctoral thesis, monograph (Other academic)
    Abstract [en]

    The thesis consists of three self-contained essays on public policy in the macroeconomy.

    “Government Policy in the Formal and Informal Sectors” quantitatively investigates the interaction between the firms' choice to operate in the formal or the informal sector and government policy on taxation and enforcement. Taxes, enforcement, and regulation are incorporated in a general equilibrium model of firms differing in their productivities. The model quantitatively accounts for the keys aspects in the data and allows me to back out country-specific enforcement levels. Some policy reforms are analyzed and the welfare gains can be fairly large.

    “Determinants of Capital Intensive and R&D Intensive Foreign Direct Investment” studies the determinants of capital intensity and technology content of FDI. Using industry data on U.S. FDI abroad and data on many different host countries' institutional characteristics, we show that there is a differential response of FDI flows to investment climate according to the capital intensity of the industries receiving the investments. We find that better protection of property rights has a significant positive effect on R&D intensive capital flows. We find evidence that an increase in workers' bargaining power results in a reduction of both kinds of FDI.

    “Ambiguity Aversion, the Equity Premium, and the Welfare Costs of Business Cycles” examines the relevance of consumers’ ambiguity aversion for asset prices and how consumption fluctuations influence consumer welfare. First, in a Mehra-Prescott-style endowment economy, we calibrate ambiguity aversion so that asset prices are consistent with data: a high return on equity and a low return on risk-free bonds. We then use this calibration to investigate how much consumers would be willing to pay to reduce endowment fluctuations to zero, thus delivering a Lucas-style welfare cost of fluctuations. These costs turn out to be very large: consumers are willing to pay over 10% of consumption in permanent terms.

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  • 53.
    Prawitz, Erik
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    On the Move: Essays on the Economic and Political Development of Sweden2017Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis consists of four self-contained essays in economics. Their abstracts are presented below:

    Exit, Voice and Political Change: Evidence from Swedish Mass Migration to the United States. We study the political effects of mass emigration to the United States in the 19th century using data from Sweden. To instrument for total emigration over several decades, we exploit severe local frost shocks that sparked an initial wave of emigration, interacted with within-country travel costs. Our estimates show that emigration substantially increased the local demand for political change, as measured by labor movement membership, strike participation and voting. Emigration also led to de facto political change, increasing welfare expenditures as well as the likelihood of adopting more inclusive political institutions.

    Mass Migration, Cheap Labor, and Innovation. Migration is often depicted as a major problem for struggling developing countries, as they may lose valuable workers and human capital. Yet, its effects on sending regions are ambiguous and depend crucially on local market responses and migrant selection. This paper studies the effects of migration on technological innovation in sending communities during one of the largest migration episodes in human history: the Age of Mass Migration (1850-1913). Using novel historical data on Sweden, where about a quarter of its population migrated, we find that migration caused an increase in technological patents in sending municipalities. To establish causality, we use an instrumental variable design that exploits severe local growing season frost shocks together with within-country travel costs to reach an emigration port. Exploring possible mechanisms, we suggest that increased labor costs, due to low-skilled emigration, induced technological innovation.                                                   

    On the Right Track: Railroads, Mobility and Innovation During Two Centuries. We study the construction of the 19th-century Swedish railroad network and estimate its effects on innovation during two centuries. To address endogenous placement of the network, our analysis exploits the fact that the main trunk lines were built with the overarching aim to connect particular city centers, while at the same time considering construction costs. Estimates show that innovative activities increased substantially in areas traversed by the railroads. The number of active innovators increased and, moreover, they became more productive. Exploring potential mechanisms, we highlight the importance of knowledge diffusion across space by studying spatial patterns of collaboration between innovators. Our analysis shows that innovators residing in areas connected by the railroad start to collaborate more and over longer distances, especially with other innovators located along the railroad network. Finally, we show that the differences in innovative activities were intensified over the 20th century. Areas traversed by the historical railroads exhibit much higher rates of innovation in the present day.                          

    Homeownership, Housing Wealth and Socioeconomic Outcomes: Evidence from Sweden 1999-2007. This paper studies a government supported homeownership wave in Sweden, where tenants bought their apartments at prices below the market value in the ownership market. Using detailed administrative register data paired with a difference-in-differences strategy, it compares individuals subject to an ownership transfer to similar individuals who never got the opportunity to buy their homes. After establishing that the new homeowners instantly increased their net wealth, the effects of homeownership and housing wealth on a set of socioeconomic outcomes are measured over time. Although the lump-sum transfer is large, the average individual only modestly adjusts her behavior in terms of labor market participation and demographic decision-making. Studying differences across age, younger tenants increase childbearing and decrease labor income, although modestly. Individuals near their retirement age decrease their labor market participation.

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  • 54.
    Qin, Bei
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Empirical Development and Political Economics2013Doctoral thesis, monograph (Other academic)
    Abstract [en]

    The thesis consists of three essays in development and political economics.

    Political Connection, Government Patronage and Firm Performance: Evidence from Chinese Manufacturing Firms

    The paper tests whether politically connected firms receive preferential favor from the government, as measured by state capital investment from the central government and subsidies. My results suggest that firms connected with one more top leader from the State Council receive 9.4 percent more subsidies, firms connected with one more leader who holds positions on both the Central Committee and the State Council obtain 23 percent more state capital and then have a 2 percentage point higher product markup. When there is extra state capital due to political connections, other domestic capital is crowded out. The heterogeneous effects find that firms with more employees, but lower sales and less profit tend to receive more state capital if equally connected, while firms with higher sales tend to obtain more subsidies. This additional state capital and these subsidies do not seem to improve the firm's performance.

    The Determinants of Media Bias in China

    We measure and investigate the determinants of political control of newspapers in China. We find that more strictly politically controlled newspapers cover disasters and corruption more than their commercial competitors, most likely in order to monitor lower level officials. We also find that they cover leaders and the official news agency Xinhua to a larger extent. We find that in the cross section, the political control correlates negatively with GDP per capita and population size, but there is no time trend in the political control of Chinese newspapers in the 2000s. Finally, we analyze the effect of a reform to close down all county papers in 2003. The reduced competition significantly affected the degree of political control of the remaining papers.

    Chinese Microblogs and Drug Quality

    This paper examines the impact of the introduction of Sina Weibo, the most popular microblog in China, on the quality of drugs on the market. I find that the number of bad drugs is decreasing in Sina Weibo use: if the Sina Weibo use is doubled, the number of bad drugs found will be reduced by 21 percent. I show that the reduction of bad drugs is driven by two mechanisms: Sina Weibo induces more effort from the Drug Administration and it deters the production of bad drugs. The results suggest that microblogs can play an important role in monitoring both the public and the private sectors, especially in a context with media censorship.

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  • 55.
    Rogall, Thorsten
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    The Economics of Genocide and War2015Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Preparing for Genocide: Community Work in Rwanda

    How do political elites prepare the civilian population for participation in violent conflict? We empirically investigate this question using village-level data from the Rwandan Genocide in 1994. Every Saturday before 1994, Rwandan villagers had to meet to work on community infrastructure, a practice called Umuganda. This practice was highly politicized and, before the genocide, regularly used by the local political elites for spreading propaganda. To establish causality, we exploit cross-sectional variation in meeting intensity induced by exogenous weather fluctuations. We find that a one standard-deviation increase in the number of rainy Saturdays resulted in a 20 percent lower civilian participation rate in genocide violence.

     

    Mobilizing the Masses for Genocide

    Do political elites use armed groups to foster civilian participation in violence or are civilian killers driven by unstoppable ancient hatred? If armed groups matter, are they allocated strategically to maximize civilian participation? How do they mobilize civilians? I empirically investigate these three questions using village-level data from the Rwandan Genocide. To establish causality, I exploit cross-sectional variation in armed groups' transport costs induced by exogenous weather fluctuations: the shortest distance of each village to the main road interacted with rainfall along the dirt tracks between the main road and the village. Guided by a simple model, I come up with the following answers to the three central questions: (1) one additional armed-group member resulted in 7.3 more civilian perpetrators, (2) armed-group leaders responded rationally to exogenous transport costs and dispatched their men strategically to maximize civilian participation and (3) for the majority of villages, armed-group members acted as role models and civilians followed orders, but in villages with high levels of cross-ethnic marriage, civilians had to be forced to join in. Finally, a back-of-the-envelope calculation suggests that a military intervention targeting the various armed groups could have stopped the Rwandan Genocide.

     

    The Legacy of Political Mass Killings: Evidence from the Rwandan Genocide

    We study how political mass killings affect later economic performance, using data from the Rwandan Genocide. Our results show that households in villages that experienced higher levels of violence have higher living standards six years after the genocide. They enjoy higher levels of consumption, own more assets and agricultural output per capita is higher. These results are consistent with the Malthusian hypothesis that mass killings can raise living standards by reducing the population size and redistributing assets from the deceased to the survivors. However, we also find that the violence affected the age distribution in villages, raised fertility rates among female survivors and reduced cognitive skills of children.

     

    Ethnic Income Inequality and Conflict in Africa

    This paper shows that income inequality between ethnic groups increases the likelihood of ethnic conflict in Africa. To establish causality, we exploit variation in rainfall over each ethnic group’s homeland. One standard-deviation increase in ethnic inequality increases the likelihood of ethnic conflict by about 66 percent. Our results have important policy implications to the extent that global climate change might affect different regions differently and thus increase inequality and conflict.

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  • 56.
    Seim, David
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Public, Political and Labor Economics2013Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis contains four essays.

    The first paper, "Real or Evasion Responses to the Wealth Tax? Theory and Evidence from Sweden", addresses the behavioral effects of an annual wealth tax. I use Swedish tax records over the period 1999-2006 and two sources of variation in the tax rate to estimate the elasticity of taxable net wealth at about 0.3. I decompose the effects into reporting and savings responses and find that an increase in the tax is likely to stimulate evasion. Using military enlistment records on cognitive ability, I find that high-skilled individuals respond more to the tax.

    The second paper, "Job Displacement and Labor Market Outcomes by Skill Level", uses previously unexplored administrative data on all displaced workers in Sweden 2002-2004 to estimate how the incidence and effects of job loss depend on cognitive and noncognitive skills. I find that workers with low ability are significantly more likely to be displaced but the recovery rates upon job loss show no significant differences across skill groups.

    The third paper, "Complementary Roles of Connections and Performance in Political Selection in China", analyzes who becomes a top politician in China. It focuses on the promotions of provincial leaders and estimates how performance - measured by provincial economic growth – and connections with top politicians – measured by having worked together in the past – influence promotions. Using data for the period 1993-2009, we find a positive correlation between promotion and growth that is stronger for connected leaders.

    The fourth paper, "Does the Demand for Redistribution Rise or Fall with Cognitive Ability?", uses data from enlistment and a tailor-made survey that elicits redistributional preferences. On a scale of 0 to 100 percent redistribution, a one standard deviation increase in cognitive ability lowers demand by 6 percentage points, also when controlling for past, current and future expected income.

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  • 57.
    Sen, Sreyashi
    Stockholm University, Faculty of Social Sciences, Department of Economics.
    Essays on Markets and Institutions in Developing Countries2024Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Labour Regulations and Industrial Performance: Evidence from India

    This paper investigates the impact of recent state level reforms passed over the period 2003 to 2016 to a central law on industrial relations, the Industrial Disputes Act of 1947, on plant outcomes in the formal manufacturing sector in India. Exploiting variation in the timing of the state level reforms, I use a stacked event study design that compares treated plants to similar control plants in untreated states to estimate the average effect of state level reforms classified as pro-worker or pro-employer. I find that labour reforms that are pro-employer significantly raise plant output, wage bill and the average earnings of workers, while pro-worker reforms are negatively related to average worker earnings but have no other meaningful effects on plant performance. I also find heterogeneity in estimated treatment effects, with place based labour reforms targeting specific industrial locales having higher effects on average compared to other types of labour reforms.

    The Impact of Size-Dependent Labour Laws on the Allocation of Resources in India

    I investigate the effect of job security provisions in India that imposed regulatory requirements on plants above a certain size threshold. Using data on plants in the registered manufacturing sector in India over the period 1998 to 2018, I first test for discontinuities in the size distribution of plants at the regulatory threshold of 100 workers. I do not find evidence of significant discontinuities in the plant size distribution at 100 workers. I then use a sharp regression discontinuity design to examine if there are systematic differences in plant outcomes at the regulatory threshold. I provide suggestive evidence that regulatory costs lead to a decline of 6.7% in plant output.

    A Quantitative Study of Poverty Traps

    This paper undertakes a quantitative exploration of how initial conditions matter for long run economic outcomes when there are capital market imperfections, using a model of occupational choice with financial frictions. The model exhibits both poverty traps at the level of the individual, as well as at the aggregate level. At the level of the individual, I find multiple steady states for similar individuals starting out with different wealth levels, with differences in wealth and consumption that persist over time. Aggregate poverty traps arise in this model due to general equilibrium effects of wages adjusting to individual occupational choices. I numerically show certain initial conditions, in terms of the distribution of wealth and aggregate capital, that determine whether economies converge to a high wage equilibrium or stay trapped in poverty at a low wage equilibrium.

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  • 58.
    Shifa, Abdulaziz B.
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Growth, Political Economy and Development2013Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis has three self-contained articles.

    Economic growth and trade in human capital: A salient empirical pattern in the East Asian “miracle” is a large increase in output and factor accumulation despite  only a modest increase in TFP. I develop and calibrate a model of growth and catch-up to provide a possible explanation. A novel element of the model is a globalized education market allowing human capital transfer from frontier to developing economies – an assumption motivated by the experience of countries like Korea and Taiwan where domestic universities employed graduates of Western universities to provide advanced training.

    The political economy of urban bias in dictatorial regimes. In many developing countries, public resource allocation is often biased against the rural population – a policy that hurts the vast majority of the poor living in rural areas. This paper develops a dynamic political economy model of urban bias in a dictatorial regime. A novel result of the model is that urban bias can emerge in predominantly agrarian economies even if there is no bias  in political power toward urban residents. The empirical evidence from a recently compiled country-level panel dataset on agricultural taxes/subsidies is consistent with the prediction of the model.

    Does agricultural growth cause manufacturing growth? Empirically assessing the impact of agricultural growth on manufacturing growth is challenging because of endogeneity concerns. This paper attempts to circumvent the identification challenge by using weather variations to instrument for agricultural growth. The IV estimations show that agricultural growth has a significant positive impact on manufacturing growth, and it is larger than the OLS estimates. I discuss the empirical implications for agricultural policies, efficiency of the manufacturing sector, and for the role of agricultural growth in Africa's industrialization.

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  • 59.
    Sigurdsson, Jósef
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Labor Supply and Adjustment Frictions2019Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Labor Supply Responses and Adjustment Frictions: A Tax-Free Year in Iceland

    How does labor supply respond to a temporary wage change? To answer this question, I study an unexpected and salient tax reform in Iceland in 1987 that resulted in a year free of labor income taxes, but creating only minimal income effects, offering an ideal natural experiment. I first construct a new employer-employee dataset from digitized administrative records for the population. I then use two complementary research designs to estimate Frisch elasticities. The first design, which is standard, exploits the progressivity of the tax system and identifies an intensive-margin elasticity of 0.4. The second design, which is new, uses similarities in life-patterns of labor supply and identifies an extensive-margin semi-elasticity of 0.07. Guided by a combination of machine learning and causal estimation, I uncover three key mechanisms behind these responses. First, the young and those close to retirement drive the extensive-margin response. Second, workers with temporal flexibility and the hourly paid have substantially higher elasticities than constrained workers. However, constrained workers take up secondary jobs, which contribute 7% of the overall responses. Third, married women are more responsive than their husbands. Husbands, but not wives, respond negatively to their spouses' tax cuts, inconsistent with unitary household models. My results imply that voluntary changes in work are key to the transmission of aggregate shocks, but the responses depend on labor-market and demographic structures.

    The Gift of Moving: Intergenerational Consequences of a Mobility Shock

    We exploit a volcanic "experiment" to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses where much more likely to move away permanently. For those younger than 25 years old who were induced to move, the "lava shock" dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The large gains from moving for the young are surprising in light of the fact that the town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.

    Time-Dependent or State-Dependent Wage-Setting? Evidence from Periods of Macroeconomic Instability

    Administrative data on monthly wages in Iceland during 1998-2010 provide new insight into nominal wage rigidity. Unlike the data used in previous work, ours have a higher frequency, minimal measurement error, and a long sample including a period of substantial macroeconomic instability. We find that the monthly frequency of nominal wage changes is 13 percent. Although nominal wage cuts are rare, their frequency rises following a large macroeconomic shock. Timing of wage changes is both time-dependent and state-dependent: we find evidence of synchronization of adjustment and contracts of fixed duration, but also that inflation and unemployment over the wage spell affect the timing of adjustment.

    Household Debt and Monetary Policy: Revealing the Cash-Flow Channel

    We examine the effect of monetary policy on household spending when households are indebted and interest rates on outstanding loans are linked to short-term interest rates. Using administrative data on balance sheets and consumption expenditure of Swedish households, we reveal the cash-flow transmission channel of monetary policy. On average, indebted households reduce consumption spending by an additional 0.25-0.35 percentage points in response to a one percentage point increase in the policy rate, relative to a household with no debt. This is true both among households with low and high levels of illiquid wealth, such as homeowners, who hold disproportionally little liquid wealth and display hand-to-mouth behavior when faced with increased interest expenses. We show that these responses are driven by households that have some or a large share of their debt in contracts where interest rates vary with short-term interest rates, such as adjustable-rate mortgages (ARMs), which implies that monetary policy shocks are quickly passed through to interest expenses.

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  • 60.
    Skult, Eva
    Stockholm University, Faculty of Social Sciences, Department of Economics.
    Studies in Saving under Uncertainty2010Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis consists of three essays.

    In Precautionary Saving under Correlated Risk, I show that the sign of the correlation between the random variables might determine whether saving increases or decreases when risk is introduced. Precautionary saving is thus not confirmed. In the second part of this chapter, the consumer must also allocate her saving between an insurance and an interest-bearing asset. It is shown that switching the sign of correlation changes the optimal insurance ratio and probably also optimal saving.

    Saving and Portfolio Choice by Mutually Altruistic Consumers treats the effects of mutual altruism between two individuals. Compared to the Utilitarian social optimum there is, on the one hand, a tendency to higher saving and lower risk share resulting from the higher uncertainty of future income in the Nash equilibrium. On the other hand, there is a tendency to lower saving and higher risk share arising from the possibility of a free ride on the generosity of others, named "Samaritan's Dilemma". Analytically, it was not possible to determine the size or the direction of divergences in the choice variables. Numerical examples show that the effect of the Samaritan's Dilemma outweighs the effect of the greater uncertainty of future income in the Nash equilibrium. However, the divergence in saving between the two solutions is rather small.

    In the literature, uncertain lifetime has been used to explain both unexpectedly low and unexpectedly high saving by the elderly. In The Effect of Uncertain Lifetime on the Saving of the Elderly, risk is introduced into the remaining lifetime and the consequences of a background risk are investigated. Introducing uncertain lifetime into the certainty model results in a slower decumulation of wealth from the date of retirement. On the contrary, introducing uncertain lifetime into a model with uncertain investment income results in a swifter decumulation and an earlier depletion of wealth.

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  • 61.
    Song, Zheng
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Dynamic Political Economy2005Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis consists of three papers in dynamic political economy:

    "Ideology and the Determination of Public Policy Over Time" investigates how public policy responds to persistent ideological shocks in dynamic politico-economic equilibrium. We develop a tractable model to analyse the dynamic interactions among ideology, public policy and individuals' intertemporal choice. Analytical solutions are obtained to characterize the Markov perfect equilibrium. Our main finding is that the relationship between ideology and the size of government turns out to be non-monotonic. In particular, a right-leaning ideological wave may lead to higher taxation, which makes the size of government much less distinctive under different political regimes. Incorporating ideological uncertainty per se has its theoretical relevance. Sufficient ideological uncertainty helps pin down a unique equilibrium. This is in contrast with recent works on dynamic political economy which feature multiple equilibria and have no sharp empirical predictions.

    "Dynamic Inequality and Social Security" analyses the dynamic politico-economic equilibrium of a model where the repeated voting on social security and the evolution of household characteristics are mutually affected over time. Political decision-making is represented by probabilistic voting a la Lindbeck and Weibull (1987). We analytically characterize the unique Markov perfect equilibrium. The equilibrium social security tax rate are shown to be increasing in wealth inequality. The dynamic interaction between inequality and social security leads to growing social security programmes. The predictions of our model are broadly consistent with empirical evidence. We also perform some normative analysis, showing that the politico-economic mechanism tends to induce too large social security transfers in the long run.

    "A Markovian Social Contract of Social Security" analyses the sustainability and evolution of the pay-as-you-go social security system in a majority voting framework with intra-cohort heterogeneity. We find that there exists a Markovian social contract through which the self-interested middle-aged median voter has incentives to support the system. This is in contrast with the approaches in the existing literature, which either resorts to the imperfect temporal separation of contributions and benefits, or builds the expectation of future social security benefits on variables that are payoff-irrelevant for future policymakers. Correspondingly, our model has a number of distinctive empirical implications. First, the social security tax rate converges along an increasing path to the steady state. Second, the growth of social security is negatively correlated with income inequality. Third, the impact of income inequality on the equilibrium social contract induces a non-monotonic relationship between income inequality and social security. These predictions are broadly consistent with the data from the OECD countries.

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  • 62.
    Spiro, Daniel
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Some Aspects of Resource and Behavioral Economics2012Doctoral thesis, monograph (Other academic)
    Abstract [en]

    This thesis consists of four essays in resource and behavioral economics.

    Resource Extraction, Capital Accumulation and Time Horizon

    The paper shows that relaxing the standard infinite horizon assumption can explain the patterns of exhaustible resource extraction and prices for the last century. An empirical test proposes a time horizon of roughly 28 years to be most likely. Model calibration yields an oil price which fits the falling price after WWII and suggests that the sharply increasing price after 1998 is due to scarcity.

    Optimal Forest Rotation under Climate Change   

    The scenario of forests growing faster over time, due to climate change, is analyzed. It is shown numerically that ignoring future changes is highly likely to be accurate in terms of harvesting and will cause insignificant profit losses.

    Tragedy of the Commons versus the Love of Variety   

    The opposing effects of overharvesting of renewable resources when property rights are missing and increased consumption variety, both due to trade, are analyzed. Trade increases welfare if the resource has strong regenerative power. If, instead, the resource regenerates slowly, then sufficient increases in the number of trade partners harms welfare and the stock may even collapse. Correcting policies may be very harsh and still improve upon laissez faire.

    The Distribution of Revealed Preferences under Social Pressure   

    Stated preferences, such as declared political opinions, are studied when individuals make the trade off between being true to their real opinions and conforming to a social norm. In orthodox societies, individuals will tend to either conform fully or ignore the social norm while individuals in liberal societies will tend to compromise between the two extremes. The model sheds light on phenomena such as polarization, alienation and hypocrisy. Furthermore, it suggests that orthodoxy cannot be maintained under pluralism.

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  • 63.
    Stryjan, Miri
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Development Policy and the Political Economy of Conflict2016Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Electoral Rules and Leader Selection: Experimental Evidence from Ugandan Community Groups. Despite a large body of work documenting how electoral systems affect policy outcomes, less is known about their impact on leader selection. We study this by comparing two types of participatory decision making in Ugandan community groups: (i) vote by secret ballot and (ii) open discussion with consensus. Random assignment allows us to estimate the causal impact of the rules on leader types and social service delivery. Vote groups are found to elect leaders more similar to the average member while discussion group leaders are positively selected on socio-economic characteristics. Further, dropout rates are significantly higher in discussion groups, particularly for poorer members. After 3.5 years, vote groups are larger in size and their members save less and get smaller loans. We conclude that the secret ballot vote creates more inclusive groups while open discussion groups favor the already economically successful.

    Preparing for Genocide: Community Meetings in Rwanda. How do political elites prepare the civilian population for participation in violent conflict? We empirically investigate this question using data from the Rwandan Genocide in 1994. Every Saturday before 1994, Rwandan villagers had to meet to work on community infrastructure. The practice was highly politicized and, according to anecdotal evidence, regularly used by the political elites for spreading propaganda in the years before the genocide. This paper presents the first quantitative evidence of this abuse of the community meetings. To establish causality, we exploit cross-sectional variation in meeting intensity induced by exogenous weather fluctuations. We find that an additional rainy Saturday resulted in a five percent lower civilian participation rate in genocide violence.

    Selection into Borrowing: Survey Evidence from Uganda. In this paper, I study how changes to the standard credit contract affect loan demand and selection into borrowing, using a representative sample of urban micro enterprises, most with no borrowing experience. Hypothetical loan demand questions are used to test whether firm owners respond to changes in loans' contractual terms and whether take-up varies by firms' risk type and other firm owner characteristics. The results indicate that contracts with lower interest rates and less stringent collateral requirements attract less risky borrowers, suggesting that there is scope for improvement of standard financial contract terms.

    Credit Contract Structure and Firm Growth: Evidence from a Randomized Control Trial. We study the effects of credit contract structure on firm outcomes among small and medium sized firms. A randomized control trial was carried out to distinguish between some of the key constraints to efficient credit use connected to the firms' business environment and production function, namely (i) backloaded returns (ii) uncertain returns and (iii) indivisible fixed costs. Each firm was followed for the 1-year loan cycle. We describe the experiment and present preliminary results from the first 754 out of 2,340 firms to have completed the loan cycle. Firms offered a grace period have higher profits and higher household income than firms receiving a rebate later on as well as the control group. They also increased the number of paid employees  and reduced the number of unpaid employees, an effect also found among firms that received a cash subsidy at the beginning of the loan cycle. We discuss potential mechanisms behind these effects.

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  • 64.
    Sun, Xueping
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on China’s Economic Development: Innovation, Public Debt and Social Connections2022Doctoral thesis, monograph (Other academic)
    Abstract [en]

    The Innovation Cost of Short Political Horizons: Evidence from Local Leaders’ Promotion in China

    I digitize the career histories of Chinese city leaders and link them to economic policies and innovation outcomes. I exploit political connections formed through previous work ties to generate variation in leaders’ promotion expectations. I find that when leaders are connected, they can expect an earlier promotion. Such expectations lead them to pursue a fast-over-slow strategy for growth: higher spending on infrastructure, lower spending on science and technology, and a lower effort in promoting innovation. As a result, the local economy has higher short-term growth but lower future patenting and long-term growth.

    Public Debt Financing and Local Credit Allocation: Evidence from China

    We exploit a regulatory change in China that shifts its local governments’ debt financing from bank loans to bond issuance as a quasi-experiment to study the effect of public debt financing on local firms’ capital structure.  We first find a crowding-out effect between corporate borrowing and public debt when local governments heavily rely on bank debt. Following the regulatory shock that local governments switch to another financing alternative – bonds, we observe that firms are crowding-in in cities where public bank debt is high, and this result is mainly driven by firms with higher performance. Lastly, we find that the switch in public debt financing leads firms with sufficient cash flow to increase investment.

    Social Connections and the Spatial Spread of COVID-19 in China

    I study how well the spread of COVID-19 across Chinese cities can be predicted by social connections and travel flows across cities. I analyze a panel of 300 cities for the period from January 23rd to March 23rd, 2020. I construct a measure, SocialMediaConnection, of social connections using aggregated social media communications across cities from Weibo, one of China’s largest social media platforms. I find that SocialMediaConnection outperforms travel flows in predicting the arrival time of COVID-19: cities with higher SocialMediaConnection to Wuhan, the initial outbreak center, have their first COVID-19 cases earlier. I also find that both social media and travel connections have dual effects on local transmission, because they correlate with interpersonal contacts, but also capture communication about infection risks. The second effect is particularly pronounced for SocialMediaConnection. Consistent with this, I find that social distancing increases in cities with strong SocialMediaConnection to cities with high infection rates.

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  • 65.
    Tebbe, Sebastian
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Externalities and Coordination Failures2023Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Peer Effects in Electric Car Adoption: Evidence from Sweden

    I study peer effects in the diffusion of electric cars in Sweden. To identify peer effects, I use a shift-share IV design that links the renewal of elapsing individual-level, car leasing contracts (i.e., shift) with the propensity to acquire an electric car based on individual traits (i.e., share). I study three different peer groups: co-workers, family members, and neighbors. One new electric car causes, in the next quarter, an additional .077 new electric car acquisitions in the workplace, .014 in the family, and .111 in the neighborhood. These peer effects generate persistent shifts in the demand for electric cars rather than pulling forward future planned purchases. I show that the new electric cars obtained by peers largely crowd out diesel and petrol cars and that peer effects are associated with the transmission of information. Peer effects reduce carbon emissions by encouraging peers to acquire electric and cleaner cars, drive less, and lower the number of cars. Finally, I document how the empirical findings alter the design of optimal environmental policies.

    Optimal Congestion Zone Pricing, Driving Behavior, and Vehicle Choice

    Urban driving causes local congestion and emission externalities, motivating numerous cities to establish location-based road pricing policies. This article provides a theoretical and empirical framework for optimal congestion charges that explicitly targets local emission and congestion externalities. As an application, I implement the optimal congestion formula by estimating the effect of the congestion zone on car ownership and driving behavior in Stockholm. To identify these effects, I exploit a temporary exemption of alternative fuel cars and variation in individuals' exposure to tolls on the road section between home and work using Swedish administrative microdata. I document that individuals exposed to congestion charges on their way to work are .84 percentage points more likely to acquire an alternative fuel car but 1.1 percentage points less likely to adopt a fossil fuel car. Adopting an alternative fuel car corresponds to a substitution from fossil fuel cars as the size of the fleet remains stable. The congestion charge resulted in an annual increase of 157 vehicle kilometers traveled by commuters in alternative fuel cars and a decrease of 298 kilometers in fossil fuel cars, suggesting that commuters partly substituted to alternative modes of transport. The empirical estimates imply an optimal congestion charge, on average, of €.38 per entrance, with diminished driving in the congestion zone accounting for three-quarters of the total charge.

    Do We All Coordinate in the Long Run?

    Players often fail to coordinate on the efficient equilibrium in laboratory weak-link coordination games. In this paper, we investigate whether such coordination failures can be mitigated by increasing the number of rounds or altering per-period stakes. We find that neither time horizon nor stakes affect equilibrium selection. In contrast to previous findings, players are not more likely to play above the previous period’s minimum choice when the horizon is longer or per-period stakes are lower. We also investigate which socio-demographic factors and behavioral traits correlate most strongly with play both in the first round and in subsequent rounds. Cognitive ability as measured by a cognitive reflection test stands out as the characteristic that is most strongly associated with efficient coordination.

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  • 66.
    Thürwächter, Claire
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Macroeconomics, Monetary Policy and Firm Heterogeneity2023Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Firm Heterogeneity and Monetary Policy Transmission

    This paper studies sources of heterogeneity in the response of firm investment to monetary policy. I estimate firm-level semi-elasticities of investment to plausibly exogenous changes in interest rates for a comprehensive firm-level dataset for ten euro area countries. I then employ a machine learning algorithm to detect which observables predict differences in the micro elasticities and find firm age to be the most important variable. Impulse responses along age reveal that investments of young firms are significantly more sensitive to monetary policy than investments of older firms. To rationalize this finding, I develop a model featuring capital adjustment costs. Older firms are less responsive to interest rate shocks, in line with the empirical findings, because they are closer to their optimal scale, which makes them less likely to pay the fixed adjustment cost and change the capital stock. One key implication of this finding is that a shift in the firm distribution towards older firms implies a lower aggregate response to monetary policy. 

    Monetary Policy Transmission in the Presence of Investment Frictions

    This paper examines the role of investment frictions for monetary policy transmission. The theoretical framework features fixed and quadratic adjustment costs, which shape the capital choice of firms along age. As firms get older, the fixed cost makes changes to the capital stock less worthwhile. The quadratic cost moderates the size of capital adjustments and investments get smaller as firms approach the optimal scale. When the interest rate changes, the fixed cost leads to heterogeneous investment responses along age. Young firms exhibit a large sensitivity to changes in the interest rate and their capital stock falls as the interest rate increases. The capital stock of older firms, however, does not adjust.

    Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy

    We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy.

    Corporate Leverage and Monetary Policy Transmission

    This paper studies how changes in corporate leverage affect the transmission of monetary policy to the aggregate economy. We identify unexpected changes in leverage through the Granular Instrumental Variable (GIV) approach (Gabaix and Koijen, 2020). We use this macro-level instrument in a panel of euro area countries to estimate potential differences in transmission when leverage changes. We find that the effectiveness of monetary policy is unchanged when there are unexpected shifts in aggregate leverage.

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  • 67.
    van Vlokhoven, Has
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    On the Cost of Capital, Profits and the Diffusion of Ideas2020Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Estimating the Cost of Capital and the Profit Share Compensation of the factor of production capital is not directly observed since most firms own part of their capital stock. I develop a new method to estimate capital compensation. I show how firms' input choices reveal the user cost of capital when firms minimize costs and produce according to a homogeneous production function. Subtracting estimated capital compensation together with all other observed costs from sales gives economic profits. Estimating the model using Compustat data, I find that the cost of capital has been declining, and that the profit share has been increasing over the past fifty years from around 4% to around 8% of sales. The increase in the profit share coincides with the observed fall in the labor share, while I estimate the capital share to be falling as well. Therefore, the fall in the labor share is not due to an increased capital intensity, but due to an increase in profits.

    Profits and the Marginal Product of Capital Around the World The extent to which marginal products of capital are equalized across countries is informative of how well international capital markets function. I estimate the marginal product of capital across a wide range of countries while allowing for imperfect competition. I find that richer countries have a higher marginal product of capital than poorer countries, but that this is entirely driven by differences in depreciation rates. Thus, in terms of output net of depreciation there is no gain by reallocating capital from poor to rich countries or vice versa. Furthermore, I find that profits have increased globally, but that the rise in profits is more pronounced in rich countries.

    The Life Cycle of Profits Old firms make more profits than young firms, and nowadays profits are more back-loaded than thirty years ago. I study to what extent this changing life-cycle pattern of profits explains the observed rise in profits and fall in firm entry. I build a quantitative life cycle model with oligopolistic competition and an occupational choice between being an entrepreneur and being a worker. All else equal, the more back-loaded profits are, the lower the value of the firm due to discounting, and therefore the fewer agents choose to be an entrepreneur. In equilibrium, aggregate profits rise to a level such that agents are indifferent between occupations. I find that the observed change in the life-cycle pattern of profits explains about two-thirds of the rise in profits, and more than fully explains the fall in firm entry.

    Diffusion of Ideas in Networks and Endogenous Search I study the diffusion of technology when the decision to search for productivity-enhancing technologies depends on the network of interactions between agents. Agents have the option to engage in costly learning from their first-degree connections. The more productive an agent's connections, the more willing it is to learn. Hence, the network affects the reservation productivity at which agents choose to learn and affects therefore aggregate productivity. I find that the denser the network, the higher learning effort and therefore the higher total factor productivity and the lower inequality. However, the effect of the network on the share of agents that learn in equilibrium is ambiguous. Furthermore, I find that nodes that are central in terms of their closeness to other nodes tend to exert more learning effort and have a higher productivity.

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  • 68.
    von Carnap, Tillmann
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Markets and marketplaces: Essays on access and transformation in remote rural economies2023Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Market access and agricultural intensification: Remotely-sensed evidence from Mozambican river crossings

    Many believe that high transport costs are a significant constraint to agricultural intensification in rural Africa. Empirical evidence is limited, however, because areas with high agricultural potential may see more infrastructure improvements and data is rarely available at the necessary granularity. We use satellite imagery to measure agricultural outcomes in Mozambique, where inadequate river crossings create discrete jumps in travel costs between banks. We find that better-connected banks have 4.1% more land under cultivation than worse-connected counterparts. Improved access thus leads to intensified land use, albeit at the potential cost of lost natural lands. 

    Remotely-sensed market activity as a high-frequency economic indicator in remote rural areas

    Effective targeting of social policies and their rigorous evaluation require relevant and accurate data. With the majority of the world's poor depending on agriculture and informal businesses for their livelihoods, information on these sectors is particularly valuable. I use high-frequency satellite imagery to map rural marketplaces across large geographies and track activity within them in real-time. Measured activity not only displays intuitive variation with respect to exogenous shocks, but also deepens the temporal and geographical detail at which remote sensing-based analyses are possible. 

    Rural marketplaces and local development

    Marketplaces are an age-old way to connect geographically separated producers and consumers, and they remain widespread in low-income countries. How do these gatherings shape development around them? To address long-standing data gaps, I combine historical sources with novel satellite-based methods to map marketplaces and measure local population density, establishing three stylized facts for Kenya over the last five decades. First, while rural population quadrupled, two thirds of weekly markets operating in 1970 no longer do so today. Second and despite many markets no longer operating, population concentrated on average around markets that were active in 1970. Third, markets further from large cities saw the most population concentration relative to their surroundings. To rationalize these findings and derive policy implications, I extend a model of rural-urban trade with markets as population-independent locations that aggregate otherwise sparse supply and demand and enable scale economies in transportation. The model explains when new markets emerge, why some markets decline, and which complementary policies catalyze markets for local development.

    Weather shocks, child mortality and adaptation: Experimental evidence from Uganda

    Climate change increases the intensity and frequency of extreme weather events. With growing understanding of their health consequences, effective adaptation policies are needed. Combining data from a randomized trial inducing spatial variation in the availability of community-healthcare with data from a natural experiment inducing variation in growing-season precipitation, we assess the effect of investment in basic community healthcare to protect the poor from adverse consequences. We find that the risk of infant death following a rainfall deficit season fell by 46% in treatment relative to control villages. Thus, investments in basic healthcare in a low-income context can reduce the risk of weather-induced child mortality.

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  • 69.
    Waisman, Gisela
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on Discrimination and Corruption2008Doctoral thesis, monograph (Other academic)
    Abstract [en]

    The thesis consists of four papers, summarized as follows.

    "Do attitudes towards immigrants matter?" analyses the consequences of negative attitudes towards immigrants to Sweden. If attitudes changed from the average level to the most positive level, the wage earned by a well educated immigrant from a non developed country would increase by 12%. This change in attitudes would increase the welfare of immigrants from Africa and Asia, through their wage and local amenities, by an equivalent to one third of their wage and the welfare of immigrants from South America and Eastern Europe by one fourth of their wage if they are well educated, and one tenth otherwise.

    In "Who is hurt by discrimination?", the effects of discrimination of immigrants on the labour market are studied in a search and wage-bargaining setting, including a risk of losing skills during the experience of unemployment. The negative effects of discrimination in the form of higher unemployment and lower wages spread to all workers, immigrants and natives, in all sectors of the economy. An increase in the share of immigrants in the economy exacerbates the problem of discrimination.

    In "Complementary controls of corruption", a theoretical model shows that when the judiciary and the media are more dependent and the elections less competitive, corruption flourishes. The three institutions are shown to be complementary. The empirical analysis indicates that the dependence of the judiciary and the media has a positive effect on perceived corruption and that the media is complementary with both the judiciary and the electoral system.

    "Decision making in the ECB's Governing Council -- Should minutes and forecasts be published ?" analyses if the publication of forecasts and minutes of the meetings of the Governing Council could have a negative effect due to the influence of governments on their representatives' votes. The information provided is shown to reduce their influence and benefit the Executive Board.

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  • 70.
    Yuan, Yangzhou
    Stockholm University, Faculty of Social Sciences, Department of Economics.
    Policy, Institutions and Misallocation2023Doctoral thesis, monograph (Other academic)
    Abstract [en]

    The thesis contains three models. Chapter 1 illustrates financial market incompleteness causes misallocations and fluences international trade pattern. Countries with more complete markets tend to specialize in risky sectors. Chapter 2 sets up a cross-generation utility function. Results show fertility constraints harm social mobility and create misallocations through multiple channels. Chapter 3 shows financial segmentation in China is the cause of housing bubbles and creates misallocations. Bubbles improve allocations by crowding out inefficient investments. 

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  • 71.
    Åhl, Magnus
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Essays on individual-level wage stickiness and forward guidance2020Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Wage stickiness and household heterogeneity

    Since long, it has been recognized that wage frictions provide realism to, and improve the properties of, macroeconomic models. Recently, another element of realism has generated a large macroeconomic literature: the addition of household heterogeneity, especially through uninsurable idiosyncratic risk on the level of worker productivity. In this chapter, I examine these two elements jointly. I incorporate wage stickiness on the household level into a standard macroeconomic model with household heterogeneity. A standard assumption when wages are sticky is that the labor demand is forcing, i.e., that households commit to supplying the amount of labor that is demanded, even if this is against their will. I show that in this setting, such an assumption is particularly unrealistic, and hence I relax it. I find that in an environment where the households cannot be forced to supply labor, productivity shocks can give rise to spells of severe underemployment -- a proxy for unemployment -- when wages are high relative to the productivity. When wages are low relative to productivity, hours worked rise, but only moderately so.

    Wage stickiness and household heterogeneity in general equilibrium

    In this chapter, I analyze the general-equilibrium implications of the heterogeneous-agents model with sticky wages that I develop in chapter 1. I find that the underemployment risk caused by a household-level wage stickiness has a large impact on the worker’s precautionary motive to save, and hence also on the equilibrium interest rate. Moreover, the wage friction causes a high dispersion of labor supply across households, in turn leading to a low aggregate labor supply, and hence also to a low production. I show that the main findings are robust to variations in the key model parameters.

    How big is the toolbox of a central banker? Managing expectations with policy-rate forecasts: Evidence from Sweden

    Some central banks have decided to publish forecasts of their policy rates. Can such forecasts be used to manage market expectations of future policy rates? In this chapter, I use an event study and regression analysis on Swedish high-frequency data to conclude in the affirmative. Surprises in an announced policy-rate forecast by the central bank affect expectations of the future policy rate up to a horizon of approximately a year and a half. However, the response is not one-to-one, but is estimated to be less than one half. It is also decreasing with the forecast horizon. Moreover, I find that the actual decisions of the bank on its current policy rate -- to the extent their choices are surprises -- influence the market expectations. However, this mechanism is only active for short horizons (less than two quarters). The longer-run market expectations on the policy rate are not affected by policy-rate surprises today.

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  • 72.
    Öberg, Erik
    Stockholm University, Faculty of Social Sciences, Department of Economics. Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    On Money and Consumption2017Doctoral thesis, monograph (Other academic)
    Abstract [en]

    Price Level Determination When Tax Payments Are Required in Money. We formalize the idea that the price level can be determined by a requirement that taxes be paid in money. We show that if households have to pay a money tax of a fixed real value and the money supply is constant, there is a unique stationary price level, and a continuum of non-stationary deflationary equilibria. The non-stationary equilibria can be excluded if we introduce an arbitrarily lax borrowing constraint. Thus, in the basic model, tax requirements can uniquely determine the price level. When money has liquidity value, tax requirements can exclude self-fulfilling hyperinflations.

    The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective. We argue that a two-agent version of the standard New Keynesian model - where a "worker'' receives only labor income and a "capitalist'' only profit income - offers insights about how income inequality affects the monetary transmission mechanism. Under rigid prices, monetary policy has no effect on output as workers choose not to change their hours worked in response to wage movements. In the corresponding representative-agent model, in contrast, hours do rise after a monetary policy loosening due to a wealth effect on labor supply: profits fall, thus reducing the representative worker's income. If wages are rigid too, however, the monetary transmission mechanism is active and resembles that in the corresponding representative-agent model.

    Consumption Dynamics under Time-varying Unemployment Risk. We argue that adjustment frictions for durable goods generate a powerful amplification channel from fluctuations in unemployment risk to aggregate consumption demand. First, we use survey data to document that durable expenditures react strongly to increased unemployment risk, while the effect on nondurable expenditures is indistinguishable from zero. Second, we propose and calibrate a buffer-stock savings model that includes adjustment frictions for durable goods. Although not targeted in the calibration, we find that the model reproduces the semi-elasticities of expenditures to unemployment risk estimated in the data. Using the model, we find that the inclusion of adjustment frictions raises the aggregate demand response of durable goods to fluctuations in perceived unemployment risk by approximately 200 percent. Moreover, upon experiencing an adverse risk shock, the responsiveness of aggregate demand for durable goods to the interest rate and transitory income shocks is dampened.

    Consumption Dynamics under Time-varying Unemployment Risk: Evidence from Time Series Data. We investigate the relationship between consumption expenditures and unemployment risk using aggregate time series data for the US and ten EU countries. As a proxy for perceived unemployment risk, we use data on households' subjective expectations over the future unemployment rate. First, we employ a single-equation framework to test whether subjective unemployment expectations predict aggregate consumption growth when controlling for predicted aggregate income growth. Second, we exploit the timing of the survey interviews in relation to the publication of official statistics to isolate exogenous innovations to unemployment expectations in a small-scale vector autoregression. For the US, both methods suggest that there is a large effect of unemployment risk on aggregate consumption. For the ten EU countries, the evidence is mixed.

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