Date of Award
Doctor of Philosophy (PhD)
This thesis focuses on the formation of micro-level heterogeneity and its implications for macroeconomics and macroeconomic policies. The first chapter studies how the heterogeneity of job types (occupation-industry) in terms of worker turnover shapes the employment fluctuations of the United States. I first document two novel facts: 1) separation and hiring of low turnover job types in cross-section co-move more with the aggregate business cycle and 2) the matches with high-quality workers formed in recession dissolve more quickly than comparable ones formed in the boom. Moreover, for matches with low-quality workers, this pattern is reversed. I then build a model that, when disciplined by the average worker flows in cross-section, can 1) replicate the business cycle facts documented above and 2) naturally lead to amplification of the employment to productivity shocks. The mechanism relies on two key elements: 1) there exist multiple job creation technologies such that stable jobs are more costly, which makes low turnover jobs more cyclical. 2) There exists sorting between worker and job types, such that endogenous changes in the composition of applicants affect firms’ job duration expectation at business cycle frequency, and thus the job creation motive. In the second chapter, we develop a novel model to study the role of venture capital (VC) in shaping US wealth inequality and mobility. In our model, households choose entrepreneurship entry and the source of external funds (bank or VC) based on project quality and household wealth. The model has three distinct features: 1) VC offers synergy with entrepreneurs through unobservable effort, while entrepreneurs incentivize VC through a profit-sharing contract. The non-contractible nature of VC effort implies expertise and funding must be combined if VC is involved. 2) VC is chosen endogenously only when project quality is high, making entrepreneurship depend more on project quality compared to wealth. 3) Internal capital of a business is more mobile for entrepreneurs compared to external funding, leading to a lower internal capital cost than external cost. This difference creates a strong saving motive for households, which is particularly relevant for wealthy entrepreneurs. The model can quantitatively match the income distribution and wealth distribution in the United States. When calibrated to occupational transitions and entrepreneurs’ equity shares, the model generates that the VC sector: 1) increases the wealth share of the top 0.1% households by 1 percent points and the wealth share of the top 1% households by 2.1 percent points, 2) increases the probability that the households at the bottom 99% move to the top 1% after a generation by 1.4 percent points. The third chapter assesses the power of forward guidance--promises about future interest rates--as a monetary tool in a liquidity trap using a quantitative incomplete-markets model. Our results suggest the effects of forward guidance are negligible. A commitment to keep future nominal interest rates low for a few quarters--although macro indicators suggest otherwise--has only trivial effects on current output and employment. We explain theoretically why in complete markets models forward guidance is powerful--generating a ``forward guidance puzzle"--and why this puzzle disappears in our model. We also clarify theoretically ambiguous conclusions from previous research about the effectiveness of forward guidance in incomplete and complete markets models.
Luo, Jinfeng, "Essays On Heterogeneity In Macroeconomics" (2022). Publicly Accessible Penn Dissertations. 5468.