Essays in Quantitative Macroeconomics
- Author(s): Neumuller, Seth
- Advisor(s): Ohanian, Lee
- et al.
These essays contribute to the study of labor economics and consumer finance, and fall within the broader category of quantitative macroeconomics. Chapter 1 investigates the trade-off between wage volatility (risk) and wage differentials (return) across industries through the lens of a general equilibrium, incomplete markets, life cycle model which allows for inter-industry mobility. While standard economic reasoning tells us that risk averse workers will demand a premium for exposure to wage volatility, for plausible calibrations of the model, I find that precisely the opposite is true - industries which expose workers to relatively low (high) wage volatility pay relatively high (low) wages. This chapter argues that inter-industry mobility is a quantitatively important insurance channel against labor market risk which is responsible for this counter-intuitive result. Chapters 2 and 3, which are both co-authored by Matthew Nelson Luzzetti, address issues in consumer finance. In Chapter 2, we introduce statistical learning and aggregate uncertainty into an otherwise standard model of consumer default. We show that learning by households and creditors endogenously generates a credit boom during a prolonged economic expansion like the Great Moderation and a severe and protracted credit crunch in response to an economic contraction like the recent financial crisis. This chapter illustrates that learning by households and creditors is an important driver of aggregate debt dynamics. Chapter 3 develops an equilibrium model of consumer default with both long-term collateralized mortgages and short-term unsecured debt. We use this framework to evaluate whether the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 contributed to the severity of the housing crisis by inducing homeowners to default on their mortgage who would otherwise have declared bankruptcy and remained in their home. We find that although this reform significantly increased mortgage default rates upon implementation, it likely had only a minor impact on the severity of the subsequent housing crash if lenders rationally adjusted their mortgage interest rates to account for its impact on the incentives of households to repay their debt.