Essays on uninsured income risk, lumpy investment and aggregate demand

This thesis consists of three chapters on uninsured income risk, lumpy investment and aggregate demand. The first chapter analyzes the non-linear response of durable spending to income shocks. Empirically, the average marginal propensity to spend (MPC) on durable goods increases with the size of income changes. I investigate whether a canonical model of lumpy durable investment with incomplete markets can replicate this fact. I first clarify analytically the source of non-linearity in this model, and I show that its sign depends on the relative strength of the extensive and intensive margins of durable adjustment. In numerical exercises, I find that the extensive margin dominates quantitatively, so that the model generates the form of non-linearity observed in the data. However, the magnitudes predicted by this canonical model are substantially lower than their empirical counterparts. I suggest various avenues to improve the quantitative performance of the model.

Name thesis:degree_name

Doctoral

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Economics

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2020

Author dc:creator

• Zorzi, Nathan Gaspar.

Advisor dc:contributor.advisor

• Iván Werning and Ricardo J. Caballero.

• Economics.

Statement dc:rights

• MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/126996

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/126996