Three essays in macroeconomics

Abstract

Chapter 1 focuses on corporate governance and business cycles. The delegation of control to insiders fosters initiative but it also gives them the opportunity to expand their firm beyond the profit-maximizing size. When goods markets are imperfectly competitive, firms are too small relative to the social optimum. In such circumstances, insiders' tendency to increase investment, employment and output are at once costly for shareholders and beneficial for the economy. Under plausible assumptions, I show that firms find it optimal to delegate control when demand is high, and that delegation choices provide a powerful amplification mechanism. Finally, the model predicts that an increase in firm volatility can decrease aggregate volatility and I present evidence consistent with this prediction. Chapter 2 studies the implications of higher product market competition and capital market integration for unemployment in Europe. These changes are likely to increase efficiency and output in the long run, but it may take time for economic actors to fully understand them and adapt. In the presence of collective bargaining and slow learning by unions, these changes can generate first a rise, then a decline in unemployment. This fits the general evolution of unemployment in Europe since the 1970s. The speed of learning by unions is likely to depend on the degree of trust between labor and capital. The empirical evidence suggests that countries where trust was lower have had more of an increase, and a later turnaround, in unemployment. Chapter 3 compares the impact of shocks to U.S. interest rates and emerging market bond spreads on domestic interest rates and exchange rates across several emerging market economies with different exchange rate regimes.

(cont.) Consistent with conventional priors, the results indicate that interest rates in Hong Kong react much more to U.S. interest rate shocks and shocks to international risk premia than interest rates in Singapore. The results are less clear-cut in the comparison of Argentina and Mexico: while interest rates in Mexico seem to react less to U.S. interest rate shocks, they react about the same to bond spread shocks, in addition to a significant impact on the exchange rate.