Skip to Main Content
 

Global Search Box

 
 
 
 

Files

File List


Lidofsky_Dissertation.pdf (1.79 MB)

ETD Abstract Container

Abstract Header

Essays in Macroeconomic Dynamics over Severe Recessions

Lidofsky, Benjamin
http://rave.ohiolink.edu/etdc/view?acc_num=osu1649872871678234

Abstract Details

2022, Doctor of Philosophy, Ohio State University, Economics.
In these essays, I study macroeconomic responses to large recessions, in environments with heterogeneous agents. In the first chapter, "Long-Term Debt, Default Risk, and Policy Transmission during Severe Recessions", I study the implications of rollover risk on firm-level investment and aggregate dynamics. A growing empirical literature suggests that the maturity risk associated with long-term debt reduces firm-level investment, particularly during recessions. I introduce discretely maturing long-term debt into a dynamic stochastic general equilibrium model where heterogeneous firms borrow subject to default risk. My model is distinguished relative to existing long-term debt models in that it captures the rollover risk arising from uncertainty about what economic conditions will be when debt matures. Moreover, my firms actively save in a short-term financial asset to help hedge against the maturity risk associated with their debt. Nonetheless, the rollover risk associated with discretely maturing long-term debt exacerbates the debt overhang problem arising in conventional long-term debt models. Thus, firms effectively face greater financial frictions, and output is on average lower. Consequently, my model predicts a larger rise in defaults and a greater decline in endogenous aggregate productivity in its response to a financial shock. Thus, its financial recessions are both deeper and longer-lived than in conventional models. I also consider a large non-financial aggregate shock, and use my model to study the efficacy of targeted stimulus policies implemented over the U.S. 2020 recession. My findings suggest that the combined effects of the Paycheck Protection Program and the expansion of quantitative easing helped stem the rise in defaults and stimulate the subsequent economic recovery. The second chapter, "The Persistence of Recessions with Incomplete Markets and Time-Varying Risk" (joint with Aubhik Khan), studies the implications of precautionary savings behavior across households on aggregate responses to crises. We study the propagation of recessions in overlapping generations economies wherein households, with uncertain lifetimes and uninsurable earnings risk, face cyclical employment risk. Business cycles are driven by persistent shocks to TFP growth and household-level employment. Increases in employment risk cause fluctuations in both the unemployment rate and in labor force participation. In this setting, we introduce elements commonly used to deliver a strong and countercyclical precautionary savings motive. Specifically, households have non-separable utility characterized by high levels of risk aversion, and a diminishing marginal productivity of investment leads to a time-varying price of capital. We find that changes in precautionary savings, following aggregate shocks, have important implications for aggregate consumption. Persistent negative shocks to TFP growth, associated with increases in risk to employment, drive large declines in consumption. This helps explain the large fall in consumption observed over the Great Recession. An empirically consistent, moderate shock to TFP growth rates implies a large and persistent fall, against trend, in aggregate consumption. Moreover, an estimated rise in households' risk of long-term non-employment reduces labor force participation and reconciles the swift recovery in TFP growth rates with a protracted decline in consumption and output.
Julia Thomas (Advisor)
Kyle Dempsey (Committee Member)
Aubhik Khan (Committee Member)
123 p.
Economics
Macroeconomics, Heterogeneity, Financial Frictions

Recommended Citations

Citations

  • Lidofsky, B. (2022). Essays in Macroeconomic Dynamics over Severe Recessions [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1649872871678234

    APA Style (7th edition)

  • Lidofsky, Benjamin. Essays in Macroeconomic Dynamics over Severe Recessions. 2022. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1649872871678234.

    MLA Style (8th edition)

  • Lidofsky, Benjamin. "Essays in Macroeconomic Dynamics over Severe Recessions." Doctoral dissertation, Ohio State University, 2022. http://rave.ohiolink.edu/etdc/view?acc_num=osu1649872871678234

    Chicago Manual of Style (17th edition)

osu1649872871678234
173
© 2022, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.