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Essays in macroeconomics Chopra, Anand

Abstract

The first chapter investigates how households’ smooth consumption against idiosyncratic wage shocks in recessions and expansions. Labour market uncertainty amplifies during recessions, captured through the cross-sectional dispersion of wages. I focus on the relative contribution of adjustments in labour supply and net assets as insurance mechanisms. My identification strategy exploits variation in expenditures, hours worked and wages over the business cycle, and is applied to US household panel data. I document a new empirical fact -- the contribution of labour supply to consumption smoothing increases during economic downturns. I then examine the nature of this cyclicality through the lens of a standard life-cycle model with multiple asset-types (liquid and illiquid). The model shows that shifts in portfolio composition towards liquid assets in high uncertainty periods can rationalize the empirical observation. The second chapter examines the joint evolution of a pandemic and its macroeconomic consequences. We outline a macro-pandemic model where individuals can select into working from home or in the market. Market work increases the risk of infection. Occupations differ in the ease of substitution between market and home work, and in the risk of infection. The model is calibrated to British Columbian micro data to examine the implications of individuals exiting market work to insure against the risk of infection. We find that endogenous choice to self-isolate reduces the peak weekly infection rate by 2 percentage points but reduces the trough consumption level by 4 percentage points, even without policy mandated lockdowns. The third chapter examines whether improving access to financial institutions always facilitates consumption smoothing. I document new empirical evidence that emerging economies with better access to banks are worse at consumption smoothing defined as the ratio of consumption volatility to income volatility. Though developed economies with better access to banks are better at consumption smoothing. A simple one-good small open economy model supplemented with trend shocks and financial access heterogeneity is calibrated to match business cycle moments of developed and emerging markets. The model can qualitatively account for the relationship between consumption smoothing and financial access for developed and emerging economies, as seen in the data.

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