ORCID

http://orcid.org/0000-0002-2938-2589

Date of Award

Spring 5-15-2022

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

What contributes to the persistence of economic recessions? How should policy respond to economic crises? The dissertation sheds some new light upon these questions in three chapters. The first chapter explores how market concentration affects business cycles. I build a model featuring the dynamic strategic competition between a forward-looking large firm and a continuum of heterogeneous entrepreneurs who are financially constrained. In the model, the elasticity of demand and the optimal markup of the large firm are determined by the degree of concentration and dynamic strategic considerations. I show that the effect of concentration depends on how the shock alters the market power of the large firm and, therefore, how its markup responds to the shock: although the endogenous markup mitigates shocks on large firms, it significantly amplifies shocks biased to entrepreneurs such as credit crunches. Followed the fluctuation analysis, chapter 2 explores how market concentration distorts the optimal subsidization policy during crises based on the model of strategic competition. I find that because the marginal cost of large firms is more elastic, the uniform interest rate cut is by its nature benefiting large firms. The raised markup of the uniform subsidization increases the welfare cost to implement the policy by decreasing wage of households. Furthermore, the subsidization biased to entrepreneurs should be more conservative because the strategic behaviors of large firms distort the demand to small firms and lower their profits. Finally, chapter 3 explores the fiscal cost to implement the Taylor Rule during the crises when zero lower bound is binding. I provide a non-linear analysis of the dynamics of a Representative Agent New Keynesian Model following an unanticipated discount factor shock following the Taylor rule. I find that the equilibrium with stable long-run prices fails to exists when there exists sufficient, but finite, high shocks or flexible prices. I show that the fiscal cost of implementing the Taylor rule become arbitrarily large when the economy approaches these finite limits. I propose a simple modification of the Taylor rule with a limit to the financial support from the government. The alternative rule the model features a milder contraction, a fiscal multiplier lower than 1, and non-paradoxical comparative statics with respect to price flexibility.

Language

English (en)

Chair and Committee

Francisco FB Buera

Committee Members

Rodolfo RM Manuelli

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Economics Commons

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