This thesis consists of three chapters on macroeconomics with heterogeneous households. In the first chapter, I document that spousal labor supply substantially mitigates the impact of cyclical labor income risk on married households. Motivated by this evidence, I present a macroeconomic model with incomplete markets in which households are heterogeneous by gender and marital status. Couples can smooth their consumption over the business cycle better than singles because (i) spouses rarely lose their jobs at the same time; and (ii) secondary earners can increase their labor supply on the extensive margin in response to a job loss of the primary earner. According to my estimated model, joint decision-making by married men and women mitigate the volatility of aggregate consumption by about 40%. Spousal insurance acts as a powerful automatic stabilizer because it weakens the general-equilibrium feedback between unemployment risk and economic activity. My model clarifies the circumstances under which this automatic stabilizer is stronger or weaker. Spousal insurance is particularly powerful in recessions caused by traditional demand shocks. It is less powerful in recessions caused by shocks like the current COVID epidemic. The second chapter is joint work with Adrien Auclert and Matthew Rognlie. We show that New Keynesian models with frictionless labor supply face a challenge: given standard parameters, they cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. A heterogeneous-agent New Keynesian model with sticky wages provides a solution to this trilemma. In the third chapter, I study a macroeconomic model with idiosyncratic unemployment risk, wealth inequality and wage bargaining. The model is challenging to solve, because wealth inequality generates heterogeneity effective bargaining power. Thus, solving the model involves finding an endogenous wage distribution, another infinite-dimensional object. I show that if the model is cast in continuous time, the wage distribution can be obtained in closed form. This dramatically simplifies the numerical solution of the model. My result suggests that a continuous-time approach to solving macroeconomic models can be especially fruitful when high-dimensional variables (cross-sectional distribution, non-degenerate price schedules) enter directly into agents' dynamic decision problems.

Creator

• Bardoczy, Bence

DOI

• https://doi.org/10.21985/n2-k29v-gd48

Subject

• Economics

Language

• en

Alternate Identifier

• etdadmin_upload_818634
• http://dissertations.umi.com/northwestern:15564

Keyword

• labor market
• general equilibrium
• heterogeneous agents

Date created

• 2021-01-01

Resource type

• Dissertation

Rights statement

• In Copyright