Essays in macroeconomics

This dissertation consists of three essays. The first one studies the effect of labor policy, in particular of firing costs, on financially restricted firms. It proposes and models an effect of firing costs that has not been described in the literature so far. When a time gap exists between production and its associated revenues, firing can become a liquidity adjustment tool that allows firms to increase their short-term liquidity. The presence of firing costs reduces the ability of firms to use this tool. This reduction negatively affects the optimal levels of investment and production of financially restricted firms. I present empirical evidence in line with this effect. The second essay studies the empirical relationship between aggregate macroeconomic volatility and idiosyncratic firm-level volatility. This relationship is a testable implication of a rich set of theoretical models available in the literature. I propose a consistent estimator of the variance of firms' real sales growth rate (proxy for idiosyncratic volatility) based on the cross-sectional properties of firms' distribution. I use optimal structural break tests and long-run relationship tests to study the relationship between aggregate and idiosyncratic firm-level volatility. The main empirical results suggest a negative and significant long-run relationship.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2006

Author dc:creator

• Bennett, Herman Z

Advisor dc:contributor.advisor

• Olivier J. Blanchard and Ricardo J. Caballero.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/34506
• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Identifier URI

http://dspace.mit.edu/handle/1721.1/34506

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/34506