This thesis is composed of three essays on macroeconomic policy, with particular em- phasis on household balance sheets. In the first chapter, I analyze the role of household borrowing conditions for the government spending multiplier. Although the financial position of households is found to be key for individual consumption responses to fiscal shocks, it may also be relevant for aggregate effects. I test this hypothesis for the U.S. using a historical sample, a novel strategy to characterize periods with different borrow- ing conditions, and instrumenting government purchases with two standard spending shocks. I find the spending multiplier above unity only when the economy is character- ized by a larger share of households facing tighter borrowing conditions. This result is primarily driven by consumption and can be explained in connection to a positive effect on labor demand, as signaled by a tighter labor market. The findings hold when chang- ing the shock identification scheme, the model specification, the sample period, and the calibration of the state variable. In the second chapter, Giacomo Rella and I use novel quarterly data on the distribu- tion of U.S. household wealth to document several facts about the distributional conse- quences of expansionary conventional and unconventional monetary policy. After show- ing the large heterogeneity in the composition of household portfolios across the wealth distribution, we use an internal instrument approach in a Bayesian VAR to show that: (i) Despite raising the wealth level of all households, monetary policy shocks shift the distri- bution of wealth towards the top tail. (ii) The consequences of monetary policy shocks on wealth shares are temporary and more pronounced in the case of unconventional mon- etary policy. (iii) The effects of monetary policy shocks across wealth groups are more heterogeneous for right-skewed distributed asset classes, such as equities and liquid as- sets. (iv) Using a counterfactual exercise to capture the portfolio composition channel, we show that both monetary policy shocks affect wealth inequality primarily via the stock market than through the housing market. In the third and final chapter, I study the consequences of fiscal consolidation on the labor market and income inequality. Following the Global Financial Crisis, many economies have embarked on fiscal adjustments. However, as of today, it is not clear whether these policies may have caused significant distortions for the labor market and income inequality. I use a panel of 16 advanced economies over the period 1978-2014 to explore these effects. The findings show that (i) fiscal consolidation has a greater negative impact on the youth, in terms of unemployment and labor force participation rate. (ii) Transfers cuts imply a wealth-effect on labor supply, (iii) tax hikes have a negative impact on employment and unemployment rates, and (iv) spending cuts, targeting public sec- tor wages and employment, adversely impact all labor market indicators analyzed. (v) Lastly, tax hikes and spending cuts have a sizable effect on income inequality, whereas the muted response to transfers cuts can be explained by the positive reaction of hours worked.

Essays on Macroeconomic policy and Household Balance Sheets / Franconi, Alessandro. - (2022 Jul 18). [10.13119/11385_220201]

Essays on Macroeconomic policy and Household Balance Sheets

Franconi, Alessandro
2022

Abstract

This thesis is composed of three essays on macroeconomic policy, with particular em- phasis on household balance sheets. In the first chapter, I analyze the role of household borrowing conditions for the government spending multiplier. Although the financial position of households is found to be key for individual consumption responses to fiscal shocks, it may also be relevant for aggregate effects. I test this hypothesis for the U.S. using a historical sample, a novel strategy to characterize periods with different borrow- ing conditions, and instrumenting government purchases with two standard spending shocks. I find the spending multiplier above unity only when the economy is character- ized by a larger share of households facing tighter borrowing conditions. This result is primarily driven by consumption and can be explained in connection to a positive effect on labor demand, as signaled by a tighter labor market. The findings hold when chang- ing the shock identification scheme, the model specification, the sample period, and the calibration of the state variable. In the second chapter, Giacomo Rella and I use novel quarterly data on the distribu- tion of U.S. household wealth to document several facts about the distributional conse- quences of expansionary conventional and unconventional monetary policy. After show- ing the large heterogeneity in the composition of household portfolios across the wealth distribution, we use an internal instrument approach in a Bayesian VAR to show that: (i) Despite raising the wealth level of all households, monetary policy shocks shift the distri- bution of wealth towards the top tail. (ii) The consequences of monetary policy shocks on wealth shares are temporary and more pronounced in the case of unconventional mon- etary policy. (iii) The effects of monetary policy shocks across wealth groups are more heterogeneous for right-skewed distributed asset classes, such as equities and liquid as- sets. (iv) Using a counterfactual exercise to capture the portfolio composition channel, we show that both monetary policy shocks affect wealth inequality primarily via the stock market than through the housing market. In the third and final chapter, I study the consequences of fiscal consolidation on the labor market and income inequality. Following the Global Financial Crisis, many economies have embarked on fiscal adjustments. However, as of today, it is not clear whether these policies may have caused significant distortions for the labor market and income inequality. I use a panel of 16 advanced economies over the period 1978-2014 to explore these effects. The findings show that (i) fiscal consolidation has a greater negative impact on the youth, in terms of unemployment and labor force participation rate. (ii) Transfers cuts imply a wealth-effect on labor supply, (iii) tax hikes have a negative impact on employment and unemployment rates, and (iv) spending cuts, targeting public sec- tor wages and employment, adversely impact all labor market indicators analyzed. (v) Lastly, tax hikes and spending cuts have a sizable effect on income inequality, whereas the muted response to transfers cuts can be explained by the positive reaction of hours worked.
Fiscal policy. Monetary policy. Household balance sheets.
Essays on Macroeconomic policy and Household Balance Sheets / Franconi, Alessandro. - (2022 Jul 18). [10.13119/11385_220201]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/220201
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