Essays on macroeconomics

Abstract

This thesis investigates the aggregate impact and transmission mechanisms of micro-uncertainty in various dimensions faced by firms and households, and examines their implications for monetary and credit policy. The first chapter explores the role of corporate diversification in the transmission of uncertainty shocks. It finds that cross-sectional uncertainty shocks often trigger a diversification wave, redistributing cash flow and credit away from high-productivity sectors, leading to inefficient resource allocation and a decline in aggregate TFP. This novel channel allows a cross-sectional uncertainty shock to generate a recession with synchronized declines in aggregate activities, consistent with empirical evidence. The second chapter examines a novel second-moment shock that reshuffles firms' productivity rankings ("turbulence"). It presents evidence that turbulence increases during recessions, reallocating labor and capital from high-to low-productivity firms and reducing aggregate TFP and stock market values. A real business cycle model with heterogeneous firms and financial frictions can generate the observed macroeconomic and reallocation effects of turbulence. The third chapter investigates the implications of inflation disagreement for the transmission of monetary policy within a New Keynesian framework, generalized to incorporate heterogeneous beliefs about the central bank's inflation target. The model suggests that inflation disagreements weaken the macroeconomic effects of both forward guidance policy and conventional interest rate policy. Empirical evidence supports the model's mechanism and predictions.

Date of Award	2024
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology
Supervisor	Yang LU (Supervisor) & Pengfei WANG (Supervisor)