Three essays in macroeconomics
In this dissertation, I offer three essays on macroeconomics with particular attention to the models of search and matching labor and international financial crisis. In plain words, each essay can be interpreted as a real-world narrative, with the proper key word of overborrowing, oversaving, and over job-posting, respectively.
In ”Unemployment and Sovereign Risk”, we introduce a search and matching labor framework into an otherwise standard sovereign debt model. The interactions between external debt dynamics, domestic labor market outcomes, and time-consistent fiscal policies are analyzed. The incorporation of the frictional labor market is shown to improve the models ability to generate empirically realistic debt level and default frequency. The quantitative impact of high unemployment benefit on deterring vacancy creation not only outweighs its consumption smoothing effect, but also increases vulnerability to a sovereign debt crisis.
Financially integrated economies observe a cross-country credit boom prior to financial re- cessions and a bust after wards. In ”A Two-country model of Banking Crisis”, we presents a two-country real business cycle model with banking sector where privately known intermediation efficiency of banks make them heterogeneous and gives rise to an interbank market. Overaccumulation of assets or low productivity in one country may lead to credit freeze in both financially integrated countries due to the existence of moral hazard and asymmetric information in the interbank market. A ”sail together” financial integration may go into a ”sink together” interbank credit freeze.
In the homework spirit of exercise, ”Efficient Frictions: from credit to labor market” introduces ex-ante heterogeneous skilled workers and endogenous labor market participation into a static credit and labor market search model. In particular, we consider two cases in which workers effectively share the vacancy cost or not, respectively. In the former case, wage contract is settled after loan
contract and workers proportionately share the vacancy cost due to sequential bargaining protocol. In the latter case, workers get paid a constant share of the output due to block bargaining protocol. In both cases, perfect smooth credit is not desired, and a frictional labor market can be welfare improving. Hosios condition is only restored when workers effectively share the vacancy cost.