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Essays on Macroeconomics

Date of Award

Spring 5-15-2015

Author's School

Graduate School of Arts and Sciences

Author's Department


Degree Name

Doctor of Philosophy (PhD)

Degree Type



Chapter 1: Production Complementarities and Flexibility in a Model of Entrepreneurship

The choice between salaried work and entrepreneurship has often been studied through the lenses of ability and wealth-related explanations. Nevertheless, recent literature documents that entrepreneurs earn less income than comparable workers, and points to non-pecuniary motives' role in entrepreneurial decisions. In this paper, I focus on the flexibility of hours as a motive for engaging in entrepreneurial activity. Defining flexibility as the ability to modify hours of work without sacrificing hourly income, I develop a model that gives inflexibility for salaried workers. Importantly, this arises as a general equilibrium effect due to complementarities between workers' hours. In a setting featuring volatile value of leisure, such inflexibility can be crucial to individuals' self-selection into entrepreneurship. I show that the flexible hours motive, disciplined with the observed occupation-specific patterns in hours (level, persistence, dispersion) and income (persistence, dispersion), can account for the observed differentials in income levels. Together with this contribution, the proposed setting provides a rich environment to evaluate public policies involving restrictions on working hours. I show that imposing maximum hours in the US can make the salaried work a better option for those who otherwise find it hard to keep up with the working hours in the economy. In particular, individuals that are entrepreneurs before the reform only to avoid undesirable hours can find it optimal to become workers. In turn, such a policy can increase the number of workers and their total hours, as well as the average productivity of entrepreneurs.

Chapter 2: Who Quits Next? Firm Growth in Growing Economies (with Julieta Caunedo)

This paper provides a theory linking characteristics of the industry dynamics to aggregate growth. We analyze firms' life cycle productivity, employment-age profiles, and firm selection across countries. Using a large cross-country dataset we document (i) more frequent labor productivity growth for firms operating in fast growing economies, (ii) lack of systematic relationship between the tail of the employment size distribution and growth and (iii) steeper employment-age profiles in slow growing economies. Our working thesis is that firms' likelihood of turning their investments into actual productivity growth, and uncertainty on their returns if successful, impacts firms investment in productivity, selection and aggregate growth. We think of firm uncertainty broadly, to include for example political instability, changes in tax regimes, lack of social capital or firm demand fluctuations. We argue that in slow growing rich productive economies, steep-employment age profiles are related to high return uncertainty and strong firm selection. We are able to accommodate poor and rich slow growing economies by decoupling firm's probability of success from return uncertainty. We build a tractable general equilibrium model that displays endogenous long run growth compatible with a stationary size distribution and the documented empirical facts. We contribute to the literature by analyzing how variations in the probability of firm success and return uncertainty account for differences in observed industry structure and its relationship with aggregate growth.

Chapter 3: Sovereign Default and the Choice of Maturity (with Juan M. Sanchez and Horacio Sapriza)

This paper presents a new quantitative model of endogenous sovereign default, maturity choice and the term structure of bond yield spreads. Sovereigns usually borrow from international markets at positive term spreads and a duration that exceeds one year. Debt duration and term spreads vary with the business cycle, decreasing during periods of higher credit market stress. However, in models of long term sovereign debt and default along the lines of Chatterjee and Eyigungor (2012) and Hatchondo and Martinez (2009), countries would prefer one period bonds if given the choice, largely due to debt dilution. We develop a model with debt dilution that can capture the debt maturity and the term structure of yield spreads found in the data. We identify the financial market features that help explain the observed maturity choice and the associated non-linear pricing of the term structure of bond yield spreads, and we provide a quantitative analysis of the effect of each feature. We find that sudden stop episodes and sovereign debt crisis resolution policies, which generally involve debt reschedulings where the maturity of old instruments is extended,largely account for the sovereigns' maturity choice and the term structure of sovereign bond yields, including the non-monotonic yield curve observed during some debt restructurings, such as the Greek hump-shaped curve in 2011.


English (en)

Chair and Committee

Rodolfo E Manuelli

Committee Members

Limor Golan, Juan M Sanchez, Yongseok Shin, Ping Wang


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