Essays in Empirical Macroeconomics and Development
This thesis consists of three chapters on empirical macroeconomics and development. Although the topics of study are diverse (one might say that small manufacturing firms in Indonesia and massive bank holding companies in the United States are half a world apart), they are tied together by the use o...
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| Format: | Thesis |
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Massachusetts Institute of Technology
2022
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| Online Access: | https://hdl.handle.net/1721.1/144544 |
| _version_ | 1826193149946494976 |
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| author | Majerovitz, Jeremy |
| author2 | Olken, Benjamin A. |
| author_facet | Olken, Benjamin A. Majerovitz, Jeremy |
| author_sort | Majerovitz, Jeremy |
| collection | MIT |
| description | This thesis consists of three chapters on empirical macroeconomics and development. Although the topics of study are diverse (one might say that small manufacturing firms in Indonesia and massive bank holding companies in the United States are half a world apart), they are tied together by the use of micro data and econometrics to study macro questions with important aggregate implications. These papers reflect a broader push to discipline macroeconomic models with credible empirical analysis. In Chapters 1 and 3, I do exactly this, combining theory and data to study aggregate productivity and the US banking sector, respectively. Chapter 2 instead focuses on getting the empirical analysis right: we make methodological contributions to improve a very common research design in macroeconomics and other fields.
In Chapter 1, I study the importance of the selection channel for aggregate productivity: the process by which less efficient firms are driven out of the market by more efficient firms. Conventional wisdom suggests that markets in developing countries are more sclerotic, allowing inefficient firms to survive that would have exited in a developed country. I provide a tractable model to examine the importance of the selection channel, and show how to calibrate it to panel data on firms. I use this model to show that the effect of the selection channel on aggregate productivity is approximately equal to the average difference in log productivity between stayers and exiters, which can be measured easily in firm panel data. Results for Indonesia, Spain, Chile, and Colombia suggest that Indonesia could raise its aggregate productivity by roughly 30% if its firm exit process became as selective as Spain’s. However, cross-country estimates suggest that the selection channel is not an important explanation for cross-country differences in output per capita.
In Chapter 2, co-authored with Karthik Sastry, we study a common research design, examine its pitfalls, and provide solutions for more accurate and efficient inference. Many prominent studies in macroeconomics, labor, and trade use panel data on regions to identify the local effects of aggregate shocks. These studies regress outcomes on the interaction of an observed aggregate shock with an observed regional sensitivity to that shock. We argue that the most economically plausible source of identification in this setting is uncorrelatedness of observed and unobserved aggregate shocks. Even when the regression estimator is consistent, inference is complicated by cross-regional residual correlations induced by unobserved aggregate shocks. We suggest two-way clustering, Driscoll and Kraay (1998) standard errors, and randomization inference as options to solve this inference problem. We also propose a more efficient optimal-IV estimator. We examine these issues in the context of Nakamura and Steinsson (2014)’s analysis of regional fiscal multipliers. We show that the standard practice of clustering by region generates confidence intervals that are too small. When we construct confidence intervals with robust methods, we can no longer reject fiscal multipliers closer to zero. The optimal IV strategy shrinks standard errors by a factor of three. Our results underscore that the precision promised by regional data may disappear with correct inference.
In Chapter 3, co-authored with Juliane Begenau, Saki Bigio, and Matias Vieyra, we use theory and microdata to study bank behavior and model the banker's optimization problem. We propose a dynamic bank theory with a delayed loss recognition mechanism and a regulatory capital constraint at its core. The estimated model matches four facts about banks' Tobin's Q that summarize bank leverage dynamics. (1) Book and market equity values diverge, especially during crises; (2) Tobin's Q predicts future bank pro fitability; (3) neither book nor market leverage constraints are binding for most banks; (4) bank leverage and Tobin's Q are mean reverting but highly persistent. We examine a counterfactual experiment where different accounting rules produce a novel policy tradeoff. |
| first_indexed | 2024-09-23T09:34:29Z |
| format | Thesis |
| id | mit-1721.1/144544 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T09:34:29Z |
| publishDate | 2022 |
| publisher | Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/1445442022-08-30T03:55:47Z Essays in Empirical Macroeconomics and Development Majerovitz, Jeremy Olken, Benjamin A. Townsend, Robert M. Massachusetts Institute of Technology. Department of Economics This thesis consists of three chapters on empirical macroeconomics and development. Although the topics of study are diverse (one might say that small manufacturing firms in Indonesia and massive bank holding companies in the United States are half a world apart), they are tied together by the use of micro data and econometrics to study macro questions with important aggregate implications. These papers reflect a broader push to discipline macroeconomic models with credible empirical analysis. In Chapters 1 and 3, I do exactly this, combining theory and data to study aggregate productivity and the US banking sector, respectively. Chapter 2 instead focuses on getting the empirical analysis right: we make methodological contributions to improve a very common research design in macroeconomics and other fields. In Chapter 1, I study the importance of the selection channel for aggregate productivity: the process by which less efficient firms are driven out of the market by more efficient firms. Conventional wisdom suggests that markets in developing countries are more sclerotic, allowing inefficient firms to survive that would have exited in a developed country. I provide a tractable model to examine the importance of the selection channel, and show how to calibrate it to panel data on firms. I use this model to show that the effect of the selection channel on aggregate productivity is approximately equal to the average difference in log productivity between stayers and exiters, which can be measured easily in firm panel data. Results for Indonesia, Spain, Chile, and Colombia suggest that Indonesia could raise its aggregate productivity by roughly 30% if its firm exit process became as selective as Spain’s. However, cross-country estimates suggest that the selection channel is not an important explanation for cross-country differences in output per capita. In Chapter 2, co-authored with Karthik Sastry, we study a common research design, examine its pitfalls, and provide solutions for more accurate and efficient inference. Many prominent studies in macroeconomics, labor, and trade use panel data on regions to identify the local effects of aggregate shocks. These studies regress outcomes on the interaction of an observed aggregate shock with an observed regional sensitivity to that shock. We argue that the most economically plausible source of identification in this setting is uncorrelatedness of observed and unobserved aggregate shocks. Even when the regression estimator is consistent, inference is complicated by cross-regional residual correlations induced by unobserved aggregate shocks. We suggest two-way clustering, Driscoll and Kraay (1998) standard errors, and randomization inference as options to solve this inference problem. We also propose a more efficient optimal-IV estimator. We examine these issues in the context of Nakamura and Steinsson (2014)’s analysis of regional fiscal multipliers. We show that the standard practice of clustering by region generates confidence intervals that are too small. When we construct confidence intervals with robust methods, we can no longer reject fiscal multipliers closer to zero. The optimal IV strategy shrinks standard errors by a factor of three. Our results underscore that the precision promised by regional data may disappear with correct inference. In Chapter 3, co-authored with Juliane Begenau, Saki Bigio, and Matias Vieyra, we use theory and microdata to study bank behavior and model the banker's optimization problem. We propose a dynamic bank theory with a delayed loss recognition mechanism and a regulatory capital constraint at its core. The estimated model matches four facts about banks' Tobin's Q that summarize bank leverage dynamics. (1) Book and market equity values diverge, especially during crises; (2) Tobin's Q predicts future bank pro fitability; (3) neither book nor market leverage constraints are binding for most banks; (4) bank leverage and Tobin's Q are mean reverting but highly persistent. We examine a counterfactual experiment where different accounting rules produce a novel policy tradeoff. Ph.D. 2022-08-29T15:54:51Z 2022-08-29T15:54:51Z 2022-05 2022-06-06T12:48:46.975Z Thesis https://hdl.handle.net/1721.1/144544 0000-0002-4025-4414 In Copyright - Educational Use Permitted Copyright retained by author(s) https://rightsstatements.org/page/InC-EDU/1.0/ application/pdf Massachusetts Institute of Technology |
| spellingShingle | Majerovitz, Jeremy Essays in Empirical Macroeconomics and Development |
| title | Essays in Empirical Macroeconomics and Development |
| title_full | Essays in Empirical Macroeconomics and Development |
| title_fullStr | Essays in Empirical Macroeconomics and Development |
| title_full_unstemmed | Essays in Empirical Macroeconomics and Development |
| title_short | Essays in Empirical Macroeconomics and Development |
| title_sort | essays in empirical macroeconomics and development |
| url | https://hdl.handle.net/1721.1/144544 |
| work_keys_str_mv | AT majerovitzjeremy essaysinempiricalmacroeconomicsanddevelopment |