Skip to main content
eScholarship
Open Access Publications from the University of California

UC Riverside

UC Riverside Electronic Theses and Dissertations bannerUC Riverside

Three Essays in Macroeconomics

Abstract

This dissertation studies three main topics in macroeconomics: the impact of labor market frictions on labor supply and income inequality, the impact of goods market frictions on individuals' optimization decisions, and the housing market in the business cycle.

In chapter one, I briefly review the research of this dissertation. Chapter two develops a dynamic general equilibrium model with progressive taxation, labor market search and heterogeneous households to study the impact of tax reform on labor supply and income inequality across educational groups. Households differ in their educational level and their time preference. I study the labor supply response to tax reform along both the intensive margin (hours worked) and the extensive margins (labor force participation). The quantitative results show that: (i) a tax reform which decreases the marginal tax rate by the same magnitude of that in the Tax Reform Act of 1986 (TRA-86), has a significant impact on households' labor supply and that approximately 65 percent of the aggregate labor supply response is along the extensive margin; (ii) households' labor supply response to tax reform depends on their educational levels. Households with less education respond more significantly along both the intensive and extensive margin while the response of households with highest education is subtle. However, the income share of the highest educational group increases due to an increase in capital income after tax reform. These findings are consistent with the empirical literature studying the effects of TRA-86 on labor supply.

Chapter three introduces search frictions in the goods market into the classic income fluctuation problem and explores individuals' intertemporal optimization decisions. Individuals make their optimal choices when they face labor productivity shocks, borrowing constraints, and search frictions in the goods market. In this framework, individuals save not only for precaution but also for transaction-the higher asset holdings an individual has the shorter waiting time for getting the frictional goods. This provides an additional dimension to look at individuals' consumption and savings behavior. It also provides a possible channel to solve the problem encountered in the Aiyagari-Bewley model, which predicts a relatively low income inequality compared to the data observed.

In the forth chapter, I examine the business cycle properties of the housing market in a multi-sector dynamic stochastic general equilibrium model with intermediate inputs and adjustment costs for capital and housing. The quantitative results replicate three main business cycle features of the housing market. First, GDP, consumption, non-residential investment, and residential investment co-move positively during the business cycle. Second, residential investment is twice as volatile as business investment. Finally, house prices and residential investment are positively correlated-a result rarely observed in models without demand side shocks.

Main Content
For improved accessibility of PDF content, download the file to your device.
Current View